This week’s EIA data was a rather bearish set of data for oil prices, in our view. There was a greater than expected build in both US crude inventory and gasoline inventory, while the draw in distillate inventory was less than forecasted. What’s more, implied all product demand worsened WoW, predominantly due to a fall in implied gasoline and distillate demand.
Crude imports rose 0.5mmb/d (+5.7%) WoW and that largely accounted for the WoW increase in crude inventory, with refinery throughput largely unchanged WoW, as was domestic production. The crude inventory excess over the historical range widened further, in spite of refineries running above the seasonal maximum utilisation. Gasoline inventory rose counter-seasonally and looks comfortable, particularly in terms of days forward cover (DFC). Distillate inventory, though, continues to be thin and is clearly below the historical range.
The disparity in gasoline and distillate inventory is reflected in on-road fuel prices, we believe. While gasoline prices dropped USc 13.2/US gallon (-3.5%) WoW, diesel held up, losing only USc 3.4/US gallon (-0.8%) WoW.
Last week’s implied all product demand gain was partly reversed after a 0.4mmb/d (-2.0%) WoW fall in demand to 19.1mmb/d. In fact, it was the volatile ‘other oil products’ category that once more held all product demand up, having gained 0.4mmb/d (+9.8%) WoW for the second week in a row. Gasoline demand worsened to 8.5mmb/d, having dropped 0.2mmb/d (-2.7%) WoW, while distillate demand fared worse, dropping 0.4mmb/d (-9.1%) WoW and 17% YoY.
Brent has been sliding over the past week, despite a host of events that might have been expected to provide support (including continuing ME tension, US/Israel military exercises, Iran’s threats to cut exports, force majeure declarations on Nigerian exports and delays in restarting the Buzzard field). We have reservations as to the market finding this data set supportive, although the crude oil inventory situation is in line with our view that oil markets are being over-supplied. While the over-supply situation persists, we continue to see downside risk to oil prices.