Crude oil futures rise on bullish API crude draw, favorable demand outlooks

0307 GMT: Crude oil futures were higher during midmorning trade in Asia June 3 as the American Petroleum Institute reported a large draw in crude inventories, reinforcing the narrative that fundamentals in the US are improving, while Europe reopening provided further support to the market.

At 11:07 am Singapore time (0307 GMT), the ICE August Brent crude contract was up 52 cents/b (0.76%) from the previous settle at $71.87/b while the NYMEX July light sweet crude contract was up 50 cents/b (0.73%) at $69.33/b.

Data from the API showed a massive 5.36 million barrels draw in US crude inventories in the week ended May 28. This fueled the crude price rally in morning Asia trading, even though the API data also showed that US gasoline and distillate inventories rose 2.51 million barrels and 1.59 million barrels, respectively, in the same period.

The rise in downstream product inventories did not faze the market, which expected demand in the US to remain robust as the country's economy continues to fire on all cylinders. Furthermore, with the Memorial Day holiday kick-starting the summer driving season, gasoline demand is expected to benefit from pent-up demand for road travel.

Even prior to the Memorial Day holiday, US gasoline demand was already on an uptrend, with ANZ analysts saying in a June 3 note that data from Descartes Labs, a geospatial intelligence company, showed the country's gasoline demand had hit its highest level in the week ended May 29 since the pandemic began.

Apple mobility data painted a similar story, as it showed US driving activity averaging 152% of baseline in the week ended May 29. The period also marked the second straight week the index hit a fresh all-time high in records dating back to January 2020.

Meanwhile, Europe's reopening also augured improved oil demand. Major European economies, including the UK, Germany, France and Italy, are expected to see lockdown restrictions eased further through June.

However, ANZ analysts have warned that a recovery remains patchy as the resurgence of the pandemic in Asia has led to protracted mobility restrictions, which are sapping oil demand.

"India's average daily gasoline sales in May declined by almost a fifth from the previous month, as stay-at-home orders crippled demand," they said.

Other analysts also said the market was supported by a lack of progress in the Joint Comprehensive Plan of Action negotiations ongoing in Vienna. The restoration of the JCPOA is expected to bring about 1.05 million b/d of Iranian crude into the market between May and December through sanctions relief, according to S&P Global Platts Analytics.

"Crude prices were also supported on doubts about if and when increased Iranian crude exports will hit the global market. Russian and Iranian officials said late Monday that there were still complications in nuclear talks," said Avtar Sandu, senior commodities manager at Phillips Futures, in a June 3 note.