Demand is rising, and production is falling, but China might be the fly in the oil market ointment. The Energy Information Administration report (EIA)t was a feel-good story about the resilience of American people and the American economy and the road back as oil and gas demand were on the rise, and that gave a boost to petroleum prices.

Oil prices are giving back their demand growth inspired gains as it is concerned about rising tensions between the U.S. and China. President Trump is going to have a press conference about China’s new security law for Hong Kong, and oil traders are concerned that this could lead to another US-China trade war and kill oil demand. That demand has shown signs of coming back much more energetic and faster than most people had expected in China and the U.S. as well. A big jump in U.S. oil refinery runs, and a leap in U.S. gasoline demand had oil traders driving prices to post-coronavirus highs.

Demand increases are coming as U.S. production continues to plunge and report overnight that OPEC oil production has crashed by 6.3 million barrels per day to 23.75 million barrels per day in May, according to JBC data. All of this would suggest that the world is going to see the global oil oversupply start to disappear as long as we don’t take a big step back with another trade war.

The EIA numbers were encouraging. While the overall commercial crude oil inventories increased by 7.9 million barrels from the previous week, we saw a big 3.395 million-barrel draw at the Cushing, Oklahoma delivery point. We also saw a 3.96 million barrels drop in the Midwest crude oil supply. The reason for the build was a 10.249 million barrel build on the Gulf Coast. We also saw 2.11 million barrels of oil go into the Strategic Petroleum Reserve at 534.4 million barrels. Crude oil inventories are about 13% above the five-year average for this time of year.

Yet refinery runs and gasoline demand were on the rise, and that shows that as the U.S. starts to open up its economy, demand for oil will spike. We saw gasoline demand snapback to 7.253 million barrels a day. Total motor gasoline inventories decreased by 0.7 million barrels last week and are about 10% above the five-year average for this time of year.

Refinery runs also came in stronger. The EIA reported U.S. crude oil refinery inputs averaged 13.0 million barrels per day during the week ending May 22, 2020, which was 87,000 barrels per day more than the previous week’s average. Refineries operated at 71.3% of their operable capacity last week. Gasoline production increased last week, averaging 7.2 million barrels per day. Distillate fuel production decreased last week, averaging 4.8 million barrels per day.

The EIA also reported that distillate fuel inventories increased by 5.5 million barrels last week and are about 24% above the five year average for this time of year. Propane/propylene inventories increased by 1.5 million barrels last week and are about 13% above the five year average for this time of year. Total commercial petroleum inventories increased last week by 14.9 million barrels a new record.

Still, while demand is coming back, we have a long way to go to get back to one year-ago level. The EIA reported that "Demand-based on products supplied over the last four-week period averaged 16.2 million barrels a day, down by 20.1% from the same period the previous year. Over the past four weeks, motor gasoline product supplied averaged 7.0 million barrels a day, down by 25.7% from the same period last year. Distillate fuel product supplied averaged 3.5 million barrels a day more than the past four weeks, down by 13.6% from the same period the previous year. Jet fuel product provided was down 66.6% compared with the same four-week period.”

Natural gas is getting weighed down by significant supply. The EIA reported that working gas in storage was 2,612 Bcf as of Friday, May 22, 2020, according to EIA estimates. This represents a net increase of 109 Bcf from the previous week. Stocks were 778 Bcf higher than last year at this time and 423 Bcf above the five-year average of 2,189 Bcf. At 2,612 Bcf, the total working gas is within the five-year historical range.