This week’s EIA data had crude inventory down a fraction (-0.3mmbbl; -0.1%) WoW but at 374.1mmbbl it remains at high levels and above the top of the seasonal range. In terms of Days Forward Cover (DFC), crude inventory appears comfortable at 25.2 days, over 2 days above the seasonal average. Meanwhile, there was a relatively sizeable 3.9mmbbl WoW build in gasoline inventory, which continues to look comfortable, especially in terms of DFC, but a 0.8mmbbl WoW draw in distillate inventory, which appears increasingly tight.
The rise in domestic production, and in particular increased production of tight oil, has been one of the key themes of the US oil market over the past year, and in years to come, we expect. Last week was no different, with production up 0.1mmb/d WoW to 6.8mmb/d. Crude imports were also up, adding 0.4mmb/d WoW. Countering these was a 0.3mmb/d rise in refinery throughput. Refiners have been running strong through much of the year, with product exports rising as domestic demand remains lacklustre.
Implied all product demand was down 0.5mmb/d (-2.4%) WoW to 19.0mmb/d after relatively large gains and losses across the product categories. Implied demand for gasoline, distillate and residual fuel oil were down 0.5mmb/d, 0.4mmb/d and 0.5mmb/d WoW, respectively. However, implied demand for the ‘other oil products’ category was up 0.7mmb/d. The 52-week average all product demand is now 2.7% down on the same year-ago measure.
Brent remains volatile but has trended downwards in the past few sessions, in line with our expectation that the conflict between Israel and Hamas is likely to provide only temporary support to oil prices, especially if the ceasefire continues to hold. In our view, the market has been oversupplied since the turn of the year and while that continues, we believe the price risk lies to the downside.