The EIA data released yesterday put the spotlight on distillates, with implied distillate demand registering a very steep 20% WoW fall of 0.8mmbd. This collapse in demand might in part be explained by Thanksgiving Day (which came a week earlier than in previous years), unseasonably warm weather and high diesel prices in recent weeks, but nevertheless looks surprisingly sharp.
Weak distillate demand was the key reason behind the 0.6mmbd WoW fall in implied all product demand, which registered a new YTD low of 17.9mmbd, with the cumulative YTD all product demand down -0.7% YoY.
Despite lower refinery utilisation (down 0.9% against market expectations of a 0.4% increase), the fall in implied demand resulted in distillate inventory gaining 5.5mmb WoW, contrary to market expectations of a 1.3mmb WoW draw. With crude inventory also rising, up 3.9mmb WoW, total crude and product inventory rose back over the prior five-year average, a notable reversal of the downward trend in place since August.
Despite the bearish tone of these numbers, given positive market news elsewhere, we expect the markets to play down the significance of this data set. The fall in crude inventory at Cushing might help support WTI over USD 100/bbl.
With global inventories remaining low, the oil markets still apparently undersupplied (despite the ramp-up in Libyan production), and the EU considering further sanctions on Iran, we believe current crude oil prices remain well supported.
The US EIA data recorded a 3.9mmb build in crude inventory (vs. +0.1mmb expected), a 5.5mmb build in distillate (vs. -1.3mmb expected) and a 0.2mmb build in gasoline (vs. +1.5mmb expected).