US crude oil inventories fall as diesel tightness raises alarms
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The US Energy Information Administration reported a draw of 3.9 million barrels in commercial crude inventories for the week ending July 11, lowering stockpiles to 422.2 million barrels. That figure puts inventories nearly 8 percent below the five-year seasonal average. Despite this tightening, oil prices held relatively steady.
West Texas Intermediate hovered around $67.80 per barrel, supported in part by a trade deal between the United States and Japan that eased broader trade concerns. Analysts at Macquarie had forecast a 1.2 million barrel build, underscoring the difficulty of predicting weekly movements given recent volatility in refinery activity.
The market remains hesitant. While crude futures remain in backwardation, where near-term contracts trade at a premium, macroeconomic risks and moderate global demand have kept prices from rising sharply.
Gasoline builds signal steady demand, but distillates remain under pressure
Gasoline inventories climbed by 3.4 million barrels, slightly above the five-year average. This aligns with summer driving patterns, particularly as consumer demand remains firm. Distillate inventories, however, continue to show signs of structural weakness.
While distillate stocks rose by 4.2 million barrels, they remain 21 percent below average. The East Coast has reached its lowest seasonal levels since 1996. This shortage has implications for freight activity, industrial use, and winter heating fuel, leaving traders and policymakers concerned.
Propane and propylene also saw an increase of 4.5 million barrels, now 14 percent above typical seasonal levels. These builds provide some balance, but do little to address the diesel supply gap.
Refineries slow output as margins tighten and product yields shift
Refinery throughput averaged 16.8 million barrels per day, a decline of 158,000 barrels per day from the previous week. Gasoline output fell to 9.1 million barrels per day, and distillate production dropped to 5.0 million barrels per day. This marks a broader response to reduced refining margins, particularly in the diesel segment.
Despite strong demand for distillate fuels, refiners appear to be curbing production amid higher input costs and evolving product strategies. Maintenance and logistical limitations also play a role, with operators seeking to avoid oversupplying a market with fragile pricing dynamics.
Macquarie’s inaccurate forecast reflected expectations that slowing production would lead to inventory builds. Instead, refiner caution contributed to a draw, revealing the challenges in short-term forecasting.
Global trade and diesel scarcity are reshaping price expectations
While domestic data offers a snapshot of current supply trends, external events continue to influence market conditions. The US–Japan trade deal provided short-term support, but instability in regions like Iraqi Kurdistan, where drone strikes recently cut output, is keeping global traders on edge.
International distillate stocks remain tight, with European and Asian inventories falling well below historical levels. Analysts have warned that such shortages could intensify inflation risks, especially if winter demand materializes earlier than expected.
The distillate market has shifted from a seasonal pattern to a strategic concern. Futures contracts suggest continued strength in middle-distillates, even if broader crude prices remain range-bound.
A tightening market raises new concerns for domestic producers
The US inventory draw underscores the continued recovery in demand, but it may not be enough to support the economics of domestic oil production. Current prices are nearing break-even levels for many producers. A recent analysis pointed out that at roughly $66 per barrel, US output is becoming less profitable, prompting declines in rig activity.
Although overall inventories are down, structural factors, like weak margins and low distillate supplies, are increasingly shaping market behavior. J.P. Morgan’s forecast for Brent crude to average $66 per barrel in 2025 reflects a landscape defined more by caution than by growth.
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