After the very large crude builds of the previous two weeks, the 2.8mmbl build in this week’s EIA data was something of an anticlimax, in our view, even if it was still above market expectations. In addition, there were significantly larger than expected product draws. Even so, crude inventory remains above the top end of the prior five-year range.
Although implied all product demand increased 0.8mmb/d WoW to 19.0mmb/d (+4.5%), the overall trend, on a 52-week average comparison basis, is down 3.0% YoY and worsened for the twelfth week in a row. The bright spots in WoW demand were in distillate and in the volatile other products category; gasoline demand was down 5.4% YoY.
We believe that the oil markets are being heavily oversupplied and expect that they might become more so, despite the concerns over Iran. The oil price is showing clear signs of retreating from its recent highs. However, we suspect it might need more broadly based evidence that global inventories are building to convince the doubters and to provide sufficient comfort that the world can handle the highly uncertain impact on Iranian supply as a result of sanctions.
We believe that the EIA’s latest forecast update confirms our view that the market is softening. If that is given added impetus in the IEA and OPEC updates due out today, the oil price could come under more pressure, especially if they provide any indication that inventories are rising more generally.