Oil prices rallied on Wednesday after the U.S. government reported a bigger-than-expected drop in crude stockpiles, but there's trouble brewing elsewhere in the energy complex.
A large surge in gasoline inventories last week, pared with a rise in refinery activity, compounded worries that a fuel glut will hurt future demand for crude oil, the feed stock for most fuels. That could frustrate efforts to balance an oversupplied market and send oil prices lower later this year.
The Energy Information Administration reported that U.S. gasoline stockpiles rose by 3.4 million barrels, versus expectations for a 1 million-barrel decrease in a Reuters poll.
Meanwhile, the nation's refiners increased their activity even as demand for gasoline softened last week. They were operating at 94.1 percent of capacity, the highest level since November 2015, according to Reuters.
"They're cranking out a lot of fuel here in the face of demand that is lackluster. They could be building a glut for themselves on the other side of the refinery," said John Kilduff, founding partner at energy hedge fund Again Capital.