This week’s EIA data recorded a substantial, counter-seasonal and contrary to expectation 2.9mmbbl rise in crude inventory taking it to 387.3mmbbl. In our view, this reflected an 0.1mmb/d WoW jump in domestic production and a 0.3mmb/d WoW rise in crude imports.
Moreover, the sharp increase in demand reported last week evaporated this week. Implied all-product demand dropped 0.8mmb/d (-4.2%) WoW following an across-the-board fall in implied demand bar the 'other products' category. All product implied demand is down 2.8% YoY on a 52-week average basis.
On road fuel prices continue to fall, with gasoline almost below the USD 3.50/US gallon mark, down USc 3.9/US gallon (-1.1%) WoW to USD 3.533/US gallon. However, that does not seem to be doing much for demand.
The P5+1/Iran talks ended on Tuesday with the parties agreeing to another round of meetings on 3 July, albeit at the technical level – we regard this as, at best, price neutral. The next key issue likely to drive the near-term oil price direction is the impact from new US sanctions, which in our view is likely to be limited. We believe crude markets are oversupplied and this data set does nothing to suggest otherwise. Until that over-supply stops, we believe pricing pressure lies to the downside.