The US oil supply unexpectedly plummeted last week — and it could keep gas prices high for longer

• US crude oil supply dropped by 2.5 million barrels last week, the Energy Information Administration said.
• Economists expected inventory to climb slightly. The drop places supply 13% below its five-year average.

Oil supply strains are already hitting the US harder than expected.

The country's commercial crude oil inventory dropped by 2.5 million barrels to 413.4 million barrels last week, the Energy Information Administration said Wednesday. The total supply now sits roughly 13% below the five-year average for this time of year, meaning oil is in unusually short supply.

The print also falls extremely short of economists' expectations. Experts surveyed by Bloomberg projected a 114,000-barrel increase in supply through the week. The 2.5-million-barrel decline doesn't just blow their forecasts out of the water, it also marks the largest one-week drop in oil supply in a month.

Wednesday's inventories data sparked the latest upswing in oil prices. West Texas Intermediate crude — the US's benchmark for oil prices — gained as much as 6.2% on Wednesday as traders digested the huge miss in US inventories. Brent crude — the international oil benchmark — also rose on the news, trading as much as 6.8% higher to $122.34 per barrel.

Gas supply is also under pressure. Motor gasoline inventories slid by 2.9 million barrels last week and now sit at the bottom end of the five-year average for this time of year. The declines extend a broad, months-long slump in US oil and gas supply and leave overall oil and petroleum product inventory at extremely tight levels.

The report adds even more gloom to an already bleak outlook for US gas prices. Russia's invasion of Ukraine drove crude prices sharply higher as investors feared the conflict would curb production. The Biden administration's ban on Russian energy commodity imports including crude oil and natural gas lifted prices higher still in early March. Crude has since retraced some of its surge, but prices remain at historically high levels.

The plateauing of crude prices has kept gas pricier at the pump. The US average gas price edged slightly lower to $4.237 per gallon on Wednesday, according to AAA. While that's down from yesterday's level and the week-ago reading, it still sits near record highs and $1.36 higher than the year-ago average.

Several factors stand to boost crude prices even higher in the coming months. While the US and UK already announced plans to cut themselves off from Russian crude, the EU is still mulling whether to take such action. Doing so would likely drive prices to record highs and further pressure supply in the US.

"The oil market remains very tight and completely fixated over every development with the war in Ukraine," Edward Moya, market analyst at OANDA, said. "If it seems likely an EU ban on Russian energy is coming, Brent crude could easily rally to record high territory above the $150 level."