Yesterday’s US EIA data was released a day later than usual due to the Martin Luther King Day holiday. The data surprised the market with a 3.4mmb draw in crude, in contrast to the expected build. However, this was largely due to a cut in crude imports.
There was a minor 0 .1mmbd WoW gain in all product implied demand to 17.9mmbd. However, demand remains extremely weak, down 6.7% YoY. The cumulative average demand for the first two weeks of the year is down 6.5% YoY (Figure 1). The cumulative average YTD demand for gasoline, the key contributor to all product demand, is down 8.1% YoY. Even distillate has started the year poorly, with cumulative average YTD demand down 3.7% YoY, dented by the unseasonably warm winter cutting into heating oil demand, we believe.
Crude imports were cut a hefty 1.6mmbd (16.6%) WoW dropping well below the bottom of the prior five-year range (Figure 2). That helped bring crude inventory levels back within the five-year range. Refinery runs fell 1.9% WoW, more than the 0.5% the market had pencilled in, which might be due to unplanned refinery downtime in PADD 2.
While the market remains focused on the risks of supply disruption through the Strait of Hormuz, we believe the EIA data and Wednesday’s IEA report (see IEA January Report - Demand Forecast Cut, More Cuts to Come of 19 January) point towards demand contraction, when the market might already have moved an over-supplied position having been net short since the start of 2010.
The US EIA data recorded a 3.4mmb draw in crude inventory (vs. +3.0mmb expected), a 0.4mmb build in distillate (vs. +1.4mmb expected) and a 3.7mmb build in gasoline (vs. +2.4mmb expected).