Following last week’s 7.1mmbbl crude inventory gain, this week’s EIA data recorded an even bigger 9.0mmbbl inventory build. Consequently inventory breached the prior five-year range. Not surprisingly, in our view, the oil market reacted negatively.
Implied all product demand, at 18.2mmb/d, was little changed from the previous week’s data and is down 5.6% YoY for the YTD. Gasoline demand rose 0.1mmb/d WoW, but remains very soft, while distillate demand is worsening, remaining in negative territory for a third week, on a 52 week average YoY basis. Crude imports rose a further 0.5mmb/d WoW after a 1.0mmb/d increase in the previous week’s data, despite ample inventory, which could be consistent with reports of increased Saudi exports to the US, in keeping with its pledge to mitigate high prices. This, and a surprisingly (suspiciously?) large jump in US domestic production, contributed to the crude inventory build, despite an 0.3mmb/d WoW pick-up in refinery throughput.
In our view, the world is transitioning from a position of under to one of substantial over-supply that could well lead to a large downward price correction, if sustained, as we expect it to be (see Increasing Oil Price Forecast – But Only to USD 105/bbl of 20 March). The markets might need to see that appear in inventory before responding fully, given the concerns around Iran.
That is likely to see a greater focus than normal on the IEA’s inventory data when its report is published on 12 April.
The US EIA data recorded a 9.0mmbbl crude inventory build (vs. +2.5mmbbl expected), flat distillate (vs. -0.5mmbbl expected) and a 1.5mmbbl gasoline draw (vs. -1.4mmbbl expected).