This week’s EIA bore the effects of Hurricane Sandy. The US Northeast, through which Sandy blasted, is a significant importer and consumer of petroleum products and the shut down in preparation for the hurricane and from the resulting flooding and power cuts, was reflected in the numbers. Implied total US demand for gasoline dropped 0.5mmb/d (-6.1%) WoW to 8.3mmb/d, whilst gasoline imports plummeted 56.2% WoW to 0.3mmb/d. Refiners were also hard hit, with utilisation in US PADD 1 down to 58.5% from 81% in the week before, while total refinery throughput was down 0.2mmb/d (-1.2%) WoW. As of yesterday, two refiners remain shut down and one is operational at reduced runs, according to the US DoE.
Other oil products fared better than gasoline, with residual fuel oil being the only other oil product to see a WoW decline in implied demand. As a result, implied all product demand actually improved marginally to 18.4mmb/d, from 18.3mmb/d in the prior week. However, implied distillate demand remains extremely weak, particularly relative to the prior year – demand is down 17.7% YoY for the week, while the 52-week cumulative average has been rapidly worsening and is now at -3.8% YoY.
Crude inventory rose 1.8mmbbl (0.5%) WoW. The drop in refinery utilisation had much to do with that, as did an uptick in crude imports (up 0.1mmb/d WoW). For much of the YTD, crude inventory has come above the top of the historical range, and since the recent trough at the end of August, it has trended upwards. With refinery throughput down this week, inventory in terms of days forward cover looks even more plentiful. Gasoline inventory levels are also looking more comfortable with the 2.9mmbbl WoW gain taking it a shade below the seasonal average. Distillate inventory however remains tight.
In our view, the ample levels of crude inventory in the US are, in part, a reflection of the global oversupply that began at the turn of the year. Low inventory levels observable at the start of the year have rebuilt. Despite recent price volatility, we see downside risks to oil prices while the oversupply persists.