Oil gets a lift from gasoline demand expectations, warning by Saudi energy minister

Price action

• West Texas Intermediate crude for July delivery
  CL.1,
  +1.39%

  CL00,
  +1.39%

  CLN23,
  +1.39%
  rose 86 cents, or 1.2%, to settle at $72.91 a barrel on the New York Mercantile Exchange.

• July Brent crude
  BRN00,
  +0.18%

  BRNN23,
  +0.18%,
  the global benchmark, gained 85 cents, or 1.1%. to settle at $76.84 a barrel on ICE Futures Europe.

• Back on Nymex, June gasoline
  RBM23,
  +0.86%
  added 0.5% to $2.66 a gallon, while June heating oil
  HOM23,
  -0.00%
  edged down by 0.2% at $2.36 a gallon.

• June natural gas
  NGM23,
  -2.29%
  declined 3.3% to $2.32 per million British thermal units after kicking off the week with a 7.2% tumble on Monday.

Market drivers

Oil prices climbed following a stark warning from Saudi Arabia’s Prince Abdulaziz bin Salman to oil speculators to “watch out,” and the sudden realization by the RBOB (reformulated gasoline blendstock for oxygenate blending) gasoline market on Monday that “our gasoline inventories are about as tight they have ever been going into the kickoff of the summer driving season,” said Phil Flynn, senior market analyst at The Price Futures Group.

“This could start to change the dynamics in petroleum that has been focused on macroeconomic fears as opposed to supply and demand realities,” he wrote in a daily report.

Speaking at an economic forum in Doha, Saudi energy minister Prince Abdulaziz bin Salman on Tuesday warned short sellers could face another round of pain.

Read: Top Saudi official says oil speculators better ‘watch out’

“Speculators, like in any market they are there to stay, I keep advising them that they will be ouching, they did ouch in April. I don’t have to show my cards, I’m not a poker player…but I would just tell them to watch out,” he said, according to Reuters.

Saudi Arabia and its OPEC+ allies unexpectedly announced more than 1 million barrels in additional cuts in early April, sparking a spike higher in crude prices, though gains were washed away by the end of the month. The cuts took effect at the beginning of May.

A meeting of OPEC+ ministers is expected June 4 in Vienna.

“With OPEC+ due to meet in early June, and the market still smarting from the surprise production cut announced in April, there is a risk of another surprise cut in output,” said Michael Hewson, chief market analyst at CMC Markets UK, in market commentary. “There has been no indication that OPEC+ is thinking along those lines yet, however there wasn’t in April, so it pays to be cautious.”

Analysts, meanwhile, have also said the Memorial Day holiday weekend is set to boost demand for gasoline and jet fuel.

See: Here’s what might lead to a spike in gasoline prices this summer

Gasoline rallied Monday as speculators looked for a demand boost as the Memorial Day holiday approaches, said Robert Yawger, executive director for energy futures at Mizuho, in a note. Gasoline futures settled 2.8% higher on Monday.

U.S. gasoline storage of 218.3 million barrels, as reported by the Energy Information Administration, is 12.6 million below the nine-year low of 205.7 million barrels from Nov. 4, 2022, “implying to me that a storage situation will likely develop at some point in the relatively near term future,” Yawger said, in a note.

The July gasoline crack spread was up 3.25% versus $34.29 and traded to a July contract high of $34.33 earlier in the session, he wrote. The crack spread is the difference between the price of a barrel of crude and the products that can be refined from it.

Weekly data on U.S. petroleum supplies will be released Wednesday by the EIA. On average, analysts expect the report to show supply declines of 500,000 barrels for domestic crude and 800,000 in gasoline for the week ended May 19, according to a survey conducted by S&P Global Commodity Insights. Distillate stockpiles are expected to be unchanged for the week.