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Sandy effect passes over


This week’s EIA data, released a day later than usual due to the Veterans Day public holiday, bore signs of a recovery from the effects of Hurricane Sandy which struck the US Northeast at the beginning of the month. Implied all product demand recovered sharply, up 1.0mmb/d (+5.3%) WoW to 19.3mmb/d — one of the highest recorded figures YTD. That was on the back of strong WoW gains in Implied demand for gasoline and distillate, which were up 0.6mmb/d (+7.2%) and 0.5mmb/d (+14.4%) WoW, respectively. Demand for both oil products reached the seasonal average, having been at or below the bottom of the seasonal range. That, however, does not reflect the lacklustre state of demand YTD. The 52-week average all product demand remains 2.9% down on the same year-ago measure, while for distillate demand, that measure worsened further still to -4.0% YoY, from -3.8% last week.

Gasoline imports also recovered, up 0.3mmb/d (+121.5%) WoW as PADD 1 ports and terminals re-opened, having more than halved in the prior week. Refinery throughput was marginally lower WoW but remains above the seasonal average.

Crude inventory continued to rise, having gained 1.1mmbbl WoW, increasing the gap to both the seasonal average and the top of the seasonal range. Crude inventory levels are high. Meanwhile, there was a draw in gasoline inventory which kept inventory levels below the seasonal average, though gasoline inventory remains comfortable in terms of days forward cover (DFC). Distillate inventory, however, remains stretched, especially after a greater than expected inventory draw. In terms of DFC, distillate inventory is at the very bottom of the seasonal range.

Brent rose yesterday after enhanced military activity between Israel and Hamas. Should the situation escalate to a ground offensive, there might be scope for oil prices to rise further still, though history shows that such effects are short-lived. In our view, the market is being oversupplied and we expect market fundamentals to assert themselves, especially if military activity between Israel and Hamas stabilises. That could produce a substantial downward correction in price.

Colin Smith, Marc Jacouris
VTB Capital analyst

EIA, USA, gasoline

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