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EIA data – Inventory falls after sharp drop in imports

 
02.08.2012

This week’s EIA data surprised with a 6.5mmbbl WoW crude inventory drawdown, significantly greater than market expectations, easing inventory down to late-April levels, but still well above the top of the normal seasonal range. In addition, there were inventory draws for gasoline and distillate, contrary to the expected builds. The key factor to the inventory draws were large drops in imports. Crude imports fell 1.3mmb/d (-12.7%) WoW to just 8.4mmb/d. Product imports collapsed to just 1.7mmb/d, down 0.9mmb/d (-33.2%) WoW. In our view, the data is suggestive of inventory management (working down swollen crude inventory levels) and a largely self-sufficient products market. Gasoline inventory levels remain comfortable on a days forward cover basis.

Implied all product demand rose marginally, up 0.1mmb/d (+0.4%) WoW, with gains in implied demand for distillate and residual fuel largely a wash with the drop in demand for 'other oil products' (-0.9mmb/d, -21.6% WoW), which more than reversed last week’s gains. Gasoline demand registered a 0.2mmb/d (+1.8%) WoW increase but remains very weak — well below the historical range. Adding further pressure to demand, gasoline prices have now risen above the psychologically significant USD 3.50/US gallon.

Despite the significantly larger than expected inventory draws, crude remains bloated and product ample against a background of continuing weak US demand. Estimates of OPEC’s July production are likely to become more widely available into next week and, though initial indications are that total OPEC production fell, it still looks likely to be well in excess of demand with Saudi production showing no sign of being reduced from the 10mmb/d level.

Colin Smith
VTB Capital analyst

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