Yesterday’s EIA data for the week to 22 June recorded an insignificant drop in crude inventory, down 0.1 mmbbl WoW to 387.2mmbbl, further widening the spread to the historical average. Crude inventory held up despite a 0.3mmb/d (-3.5%) WoW drop in implied crude imports, a 0.1mmb/d (-1.5%) WoW fall in domestic (Alaskan) production and flat, but historically very high, refinery throughput.
Implied all product demand rose 0.5mmb/d (1%) WoW on the back of WoW gains for distillate and gasoline demand. Still, demand remains lacklustre, with all product demand down 3.3% YoY, for the YTD.
On road fuel prices dropped sharply WoW, with gasoline now below the USD 3.50/US gallon mark, down USc 9.6/US gallon (-2.7%) WoW to USD 3.437/US gallon. Perhaps this, together with the 4 July Independence Day holiday next week, could help gasoline demand.
Today, the latest round of US sanctions against Iranian petroleum becomes applicable, and on 1 July the EU embargo also formally kicks in. The extent to which these reduce Iranian supplies to the market remains to be seen. Our own expectation is that these sanctions are likely to have limited incremental impact on physical supplies. Until the oversupply is curbed, the price risk lies to the downside, in our view. However, we expect that Saudi Arabia will cut output to defend USD 100/bbl, if that becomes necessary.