U.S. crude and fuel inventories tightened further last week, as supplies of gasoline hit a two-year low and inventories at the largest U.S. commercial storage hub dropped to a three-year low, the Energy Information Administration (EIA) said on Oct. 20.

Crude inventories fell by 431,000 barrels in the week to Oct. 15 to 426.5 million barrels, compared with analysts' expectations in a Reuters poll for a 1.9 million-barrel rise.

Crude stocks at the Cushing, Oklahoma, delivery hub fell by 2.3 million barrels to 31.2 million barrels. That’s the lowest level since October 2018, and points to tightness in the market that may take some time to alleviate.

“It makes no economic sense to keep excess inventories at Cushing when you can sell it in the prompt month. I expect that the draws at Cushing are going to continue,” said Andrew Lipow, president of Houston-based consultancy Lipow Oil Associates.

Futures contracts are currently in backwardation, where later-dated contracts trade at a lower price than the current contract. That encourages companies to sell oil immediately rather than keep it in storage.

The decline in stocks occurred even as refinery crude runs fell by 71,000 bbl/d in the last week. Refinery utilization rates fell by 2 percentage points as those facilities process fewer barrels in the midst of the traditional maintenance season.

Despite that, though, the strength in overall demand for products could mean refiners have to ramp up activity before long again. U.S. gasoline stocks fell by a more-than-expected 5.4 million barrels in the week to 217.7 million barrels, the lowest since November 2019, the EIA said.

Overall product supplied rebounded in the most recent week, with the four-week average of supply from refineries—a proxy for customer demand—hitting 20.9 million bbl/d, less than 1% off of 2019 levels.

Oil prices rebounded from losses after the decline in inventories. U.S. crude futures were up 9 cents to $83.05/bbl, while Brent were down 3 cents to $85.05/bbl as of 10:35 a.m. EDT (1435 GMT).

Distillate stockpiles, which include diesel and heating oil, fell by 3.9 million barrels, putting their stocks at their lowest levels since April 2020.

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