Crude Draw Tightens Supply Ahead of OPEC+ Decision

U.S. crude inventories fell by 3.3 million barrels last week, the American Petroleum Institute reported Tuesday, a draw that pushed stockpiles toward the lower end of the five-year seasonal range. The decline exceeded analyst expectations of a 2.1 million barrel drop and came as refinery utilization ticked higher ahead of the summer driving season.

The official Energy Information Administration data, due Wednesday at 10:30 a.m. Eastern, will confirm the scale. If the EIA matches the API number, commercial crude stocks would sit roughly 4% below the five-year average, the tightest position since late February.

West Texas Intermediate futures have held near $80 a barrel, up about 12% year to date. That inventory picture supports the bullish case. It runs into a wall of supply.

OPEC+ meets June 1 to set production policy for the second half. The group's current agreement allows for the gradual return of 2.2 million barrels a day of voluntary cuts starting in July. Iraq has already signaled it wants to pump more. The country produced 4.2 million barrels a day in April, above its quota, and Baghdad has argued the baseline used for its target is too low. If OPEC+ sticks with the current plan, the market could see an additional 500,000 to 600,000 barrels a day by September, roughly half the projected global demand growth for the year, several traders said.

Saudi Energy Minister Prince Abdulaziz bin Salman has warned speculators to "watch out" for a production surprise, a comment traders read as a signal Riyadh is prepared to cut again if prices soften. The minister has used similar phrasing before OPEC+ meetings where the group surprised the market with deeper cuts.

"The Saudis want higher prices, they also want market share," said Amrita Sen, founder of Energy Aspects. "Those two goals are in tension at current production levels."

The EIA's weekly report Wednesday will also show gasoline inventories, which have drawn in four of the past five weeks. Gasoline demand is running about 2% above the same period last year, according to EIA data, as drivers hit the road for early-season travel. Refiners are running at about 91% of capacity, near the upper end of the seasonal range, leaving limited room to boost output if demand accelerates further.

On the demand side, China's crude imports rose 5.5% in April from a year earlier, customs data showed, driven by new refinery capacity and stockpiling. The pace of Chinese buying could slow in the second half as independent refineries face tighter import quotas. The government has yet to issue the second batch of crude import allowances for 2024, which typically covers the July-December period.

Chevron, the second-largest U.S. oil producer by market value, reported first-quarter earnings that beat analyst estimates on higher production from the Permian Basin. The company's Alpha Score of 54/100 reflects mixed momentum, with cash flow strong upstream volumes facing pressure from maintenance shutdowns in Kazakhstan. Chevron shares have lagged the broader energy sector this year, up about 8% against the S&P 500 Energy Index's 12% gain.

For crude, the near-term path depends on whether OPEC+ extends cuts into the third quarter. A rollover of current quotas would keep inventories tight through summer, supporting WTI in the $78-$85 range. A partial unwind would add barrels to a market that already faces rising non-OPEC supply from the U.S., Brazil, and Guyana, potentially pushing prices back toward $72, the level where the U.S. government began refilling the Strategic Petroleum Reserve last year.

The EIA publishes its weekly storage data Wednesday morning.