This week’s EIA data saw crude inventory build 2.9mmbbl WoW, despite being in excess of the five-year historical range and in plentiful supply in both absolute and days forward cover terms (DFC). The build was greater than market expectations and sharper than the seasonal average. Gasoline inventory also gained WoW, from last week’s YTD low, while in DFC terms, gasoline inventory levels appear comfortable around the seasonal average. Distillate inventory levels, though, continue to look strained, particularly after another product draw which kept inventory levels below the seasonal range, both in absolute and in DFC terms.
The tightness in middle distillates is not as a result of idle refiners. US refinery utilisation is running above the seasonal high, while refinery throughput is closer to the seasonal high than it is to the seasonal average.
All product implied demand jumped 0.8mmb/d (+4.3%) WoW to 19.5mmb/d and is now above the historical average for only the third time this year. While that might appear bullish at first glance, it was the highly volatile ‘other oil products’ category that was responsible for over half of the WoW increase. Indeed demand has been weak throughout the year. Average all product demand over the last 52-weeks, as compared to the 52 weeks of the proceeding period, is down 2.8%, while the same measure for gasoline appears to have stagnated at -4%. For distillate, this measure is worsening and is now at -2.4%.
This week’s EIA data is rather bearish for oil prices, in our view. The fact that crude oil inventory in the US has been in excess of the historical average for over half the YTD is in line with our view that oil markets are being over-supplied. While the over-supply situation persists, we see downside risk to oil prices. Meanwhile, US domestic production has risen above the 6.6mmb/d mark for the first time since 1995, while deep-water drilling permits at the Gulf of Mexico are reportedly at their highest since 2007.