After a lackluster period, crude oil futures have surged for a third consecutive day, buoyed by a substantial reduction in U.S. gasoline and distillate inventories, while natural gas prices have plummeted to the lowest level in over eighteen months.

Supply and Demand Dynamics

The U.S. Energy Information Administration’s report revealed that domestic gasoline stocks fell by a remarkable 3.15 million barrels last week. At the same time, distillate stocks experienced a significant drop of 3.2 million barrels, in stark contrast to the respective estimates for a 140,000-barrel build and a 1 million-barrel draw.

What’s driving these moves in the market is not just the inventory shifts. The significant drop in stocks is also bolstering crack spreads – the price differential between crude oil and petroleum products. This signals an anticipation of higher fuel prices and stronger crude demand in the forthcoming weeks, once maintenance activities are completed,” according to DTN analyst Troy Vincent’s insights shared with MarketWatch.

Impact of External Factors

The unexpected surge in crude stocks by 5.5 million barrels has emerged as a counterweight. This surge could be associated with production recovery following a chilling cold snap, together with a sharp drop in refining in the Midwest, likely due to the power outage and subsequent shutdown of BP’s oil refinery in Whiting, Indiana.

Market Performance

Front-month Nymex crude (CL1:COM) for March delivery concluded 0.7% higher, reaching $73.86 per barrel, while front-month April Brent crude (CO1:COM) settled 0.8% higher, standing at $79.21 per barrel. This marks the third consecutive gain for both of these key benchmarks.

Meanwhile, the Nymex natural gas for March delivery (NG!:COM) experienced a significant downturn, falling below the $2 mark to settle 2.1% lower at $1.967/MMBtu. This represents the lowest settlement for the front month since September 2020, reflecting the market’s bearish sentiment regarding mild near-term weather forecasts.

Commodities and Investment Opportunities

Exchange-traded funds (ETFs): (NYSEARCA:USO), (BNO), (UCO), (SCO), (USL), (DBO), (DRIP), (GUSH), (NRGU), (USOI), (UNG), (BOIL), (KOLD), (UNL), (FCG)

Market Insights

Although crude oil has experienced a relatively modest increase of approximately 3% year-to-date, the presence of a Middle East war premium and rising transport costs has been largely offset by a mixed global economic outlook. However, these subdued movements are concealing a notable surge in oil derivatives trading. Bloomberg has reported that aggregate open interest across the main futures contracts has risen to the highest level since March 2022.