This week’s EIA data saw a crude inventory draw of 1.5mmbbl where the market was expecting a 1.0mmbbl build. Even so, crude inventory levels remain high and above the top of the seasonal range, as they have been for most of this year. In fact, the WoW draw was lower than the seasonal average, meaning that the spread to that seasonal average continued to widen.
Gasoline and distillate inventory levels were also lower WoW after unexpected and stronger than expected draws, respectively, though gasoline continues to look comfortable in terms of days forward cover (DFC). That is not the case for distillate inventory, which appears low and worsening in both absolute terms and in terms of DFC.
It was a sharp increase in refinery throughput, up 0.3mmb/d (+1.9%) WoW, and a 0.1mmb/d (-1.3%) WoW fall in crude imports that lead to the crude inventory draw. Crude imports have been particularly low over the last four weeks and, indeed, this year, as domestic production continues to ramp up, displacing demand for crude imports, we expect. Crude imports YTD have averaged 0.7mmb/d below the historical YTD average.
Implied all product demand was up 0.1mmb/d (+0.5%) WoW to 19.5mmb/d, remaining elevated relative to YTD performance and marginally above the seasonal average. The
Brent has been volatile over the past week, as the market responded to newsflow about military activity between Israel and Hamas. We expect these events to provide only temporary support to oil prices, even in the event of a ground invasion, should recent history, in the form of Operation Cast Lead (2008/09), prove to be a good proxy. In our view, the market has been oversupplied since the turn of the year and that could produce a substantial downward correction in price as and when market fundamentals take hold.