This week’s EIA data recorded yet another bigger than expected build in crude inventory, despite the inventory draw reported by the API the day before. That kept crude inventory levels above the prior five-year range. There might be an element of seasonal stockpiling taking place, as the summer driving season approaches. However, demand remains very lacklustre as this week’s numbers remind. This was a bearish data set, we believe, contrary to the reiteration of bullish calls by certain competitors.
There were WoW falls in implied demand across the board, bar the volatile other products category which gained 22.2% WoW (0.7mmb/d) and prevented all product demand from dropping below the five-year range. All product demand fell 0.1mmb/d WoW, and is down 4.2% YoY, down 5.0% for the YTD YoY and down 3.3% on a 52-week average YoY basis (Figure 2). Gasoline and distillate demand fell WoW despite on road prices having both rolled over, as crude feedstock prices have eased and as crack spreads narrowed.
US crude production picked up an impressive 0.1mmb/d WoW, taking it to 6.1mmb/d. This level of output was last reached in November 1999.
We expect strong domestic production and weak demand to keep crude imports low, implying a rise in inventory in other regions where inventories are currently tight, and allowing the likes of China to fill their expanded strategic reserves capacity. We believe this process is already pressurising the Brent price and we expect it to continue to do so.