Oil Falls 2.5 Percent As U.S. Refiners Ramp Up Supply, Equities Slump

Oil prices declined by 2.5 percent on Wednesday, reversing early gains, as traders became less concerned about a supply bottleneck after government data revealed that U.S. refiners increased output, and as crude futures followed Wall Street lower.

Brent crude finished at $109.11 a barrel, down $2.82, or 2.5%. The price per barrel of U.S. West Texas Intermediate (WTI) crude declined $2.81, or 2.5%, to $109.59.

According to Giovanni Staunovo, an analyst at UBS, both benchmarks surrendered $2 to $3 a barrel in early gains as a result of a change in risk sentiment when equities markets fell.

A day after dipping beneath the U.S. benchmark for the first time since May 2020, Brent remained at an extraordinary discount to WTI. Traders and experts noted robust export demand and diminishing crude inventories in the U.S.

In response to tight product inventories and near-record exports, which have pushed U.S. diesel and gasoline prices to record highs, U.S. crude inventories fell by 3.4 million barrels last week, according to government data. This unexpected decline occurred as refiners increased output in response to tight product inventories. 

Two days after reaching a record high, gasoline prices in the United States plummeted 5%.

On both the East Coast and Gulf Coast, capacity utilization exceeded 95%, bringing refineries close to their maximum operating rates.

John Kilduff, a partner at Again Capital LLC, stated, "While the data appeared to be incredibly bullish, refiners are racing to put more refined products on the market... there is certainly a refiner's response."

In response to fears about economic growth and inflation, the dollar rose and global markets declined.

Reports that the United States intends to ease sanctions against Venezuela and allow Chevron Corp (NYSE:CVX) to discuss oil licenses with state producer PDVSA further contributed to the bearish sentiment.

Dennis Kissler, senior vice president of trading at BOK Financial, stated, "The assumption that further Venezuelan supply could enter the market, coupled with the equities markets, is causing some profit taking in a much-needed technical correction in oil."

Some diplomats anticipate agreement on a phased ban at a conference at the end of May, despite the European Union's inability to convince Hungary to waive its veto on a proposed oil embargo against Russia.

Continuing supply concerns supported the market. As a result of Western sanctions, Russian crude output in April decreased by over 9 percent compared to the previous month, an internal OPEC+ study revealed on Tuesday.

On the demand side, predictions of additional lockdown easing in China increased recovery optimism. According to reports, authorities permitted 864 financial institutions in Shanghai to restart operations, and China has loosened COVID test requirements for U.S. and other passengers.