After Tuesday's losses in the U.S. crude oil market, bullish sentiment was bolstered by a key industry report about the supply of Texas Tea. Overnight trade in WTI crude was buoyed by the American Petroleum Institute's estimates that indicated crude inventories falling much more than analysts' expectations.

Gasoline and heating oil futures showed some buoyancy in the overnight market on the heels of the API's forecast of smaller-than-expected increases in distillate product supplies.

The API estimated domestic crude stocks falling by 6.8 million barrels, gasoline stocks rising by 209,000 barrels and distillate stocks, which include diesel and heating oil, increasing by 723,000 barrels.

Analysts forecast U.S. crude oil inventories declining by 1.0 million to 2.0 million barrels. Street estimates for gasoline stocks ranged between a drawdown of 500,000 barrels and a build of 1.9 million barrels. An increase between 1.0 million and 1.5 million barrels in distillate supplies was also seen.

In the end, the Street estimates proved more accurate. Actual crude oil inventories decreased by 2.0 million barrels, according to the U.S. Energy Department, while gasoline stocks were built up by 500,000 barrels. Government figures also showed distillate fuel supplies increasing by 2.5 million barrels.

The drawdown in crude supplies confirmed by the Energy Department is bullish on its face, as it's the first decline in three weeks. The small build in gasoline supplies adds to the market's bullish sentiment, but is tempered somewhat by the large increase in distillate fuels.

Refinery usage, which ran at 89.4 percent according to last week's Energy Department report, was forecast to inch up to 89.6 percent. Actual utilization ran at 88.4 percent, according to the government. Gasoline production increased to a daily average of 9.4 million barrels, while average daily distillate fuel output stepped up to 4.4 million barrels.

Gasoline demand, says the Energy Department, now averages 9.3 million barrels per day, up 1.5 percent from the same period last year. Distillate fuel demand averages 3.8 million barrels per day, up 10.9 percent from a year ago.

Trading Week

WTI crude fell 1.6 percent for the week ending Tuesday. Crack spreads were driven lower by outsized losses in distillate products. Gasoline prices slumped 3.1 percent and heating oil fell 2.5 percent.

Refining margins still favor—albeit slightly—the production of middle distillates over gasoline. Gasoline-rich production runs grossed 14.2 percent as of Tuesday, while distillate-heavy operations earned 14.4 percent.

Week-over-week, volume for NYMEX-traded WTI fell 23.2 percent to average 476,844 contracts daily. Open interest declined 3.7 percent to a daily average of 1.258 million contracts.

NYMEX contango shrank further this week. A three-month roll, which cost $2.62 a barrel last week, now runs $1.72. Roll costs have dropped from a May 14 peak of $7.37. A narrowing contango is consistent with the reported 800,000-barrel drawdown in crude stocks at the Cushing, Okla. delivery terminus for WTI contracts.

This week, excess carry turned negative, reflecting a 3.2 percent annualized cost for three-month storage. This should discourage storage of new production.

WTI's barrel premium to North Sea Brent crude averaged $1.39 this week. Last week, Brent commanded a 13-cent premium to the U.S. benchmark.

Nearby WTI Crude Futures

Yesterday, spot WTI crude broke below its 20-, 50- and 200-day moving averages to finish at $75.42. If last week's reaction low at $75.13 is taken out, bears will likely set their sights on the June 11 low at $73.72. Upside resistance looms at Monday's $79.19 high.