Although Hurricane Isaac only made it to Category 1 level, its impact on crude imports and production in the Gulf of Mexico (GoM) explain the sharp and larger than expected 7.4mmbbl WoW drop in US crude inventory. That was despite refinery utilisation falling 5.1% WoW to 86.1%, also much more than the forecast 1.5% reduction in throughput anticipated by the market.
Domestic crude production fell 0.8mmb/d WoW (-12.3%) to 5.5mmb/d as up to 1.3mmb/d of oil production in the GoM was shut for precautionary reasons. As of yesterday, a fairly substantial 0.6mmb/d was still shut in. Crude imports dropped sharply, falling 1.5mmb/d WoW (-15.4%), also mainly as a result of Isaac’s impact, we believe.
However, although crude inventory slumped, the proportionate fall in refinery utilisation was even harder, meaning that days forward cover (DFC) for crude actually jumped back above the top of the range.
Demand remains weak but fairly steady with total all product demand down 0.2mmb/d WoW (-0.9%) at 18.9mmb/d, well below the lower end of the range.
From a global oil price perspective, there is little meaningful read through from this data set. In total, Isaac looks likely to end up costing crude production amounting to some 13mmbbl, we estimate or about 4 hours of global daily liquids production. Nevertheless, September is statistically the most active month for storms, so there remains the potential for more hurricane disruption at a time when OECD production maintenance is high. As that production returns, markets are likely to look even more over-supplied. Meanwhile, we believe the US has made its opposition to any precipitate Israeli action against Iran clear and with the cancellation of a key Israeli security cabinet meeting after leaks suggesting considerably less threat from Iran to Israel than Prime Minister Netanyahu has recently been publicly suggesting, that threat too seems to be easing. We believe risks to current price levels lie sharply to the downside.