Yesterday’s EIA petroleum status report, the first of the weekly series for the new year, had US crude oil production surpassing the 7mmb/d mark as production rose to the highest levels since 1993. There was a small but counter-seasonal crude inventory build of 1.3mmbbl (+0.4%) WoW taking inventory levels significantly above the top of the seasonal range. Furthermore, there were strong builds in product inventory with gasoline up 7.4mmbbl (+3.3%) and distillate up 6.8mmbbl (+5.5%) WoW. That resulted in a total 15.5mmbbl WoW inventory build, more than double market expectations of a 6.4mmbbl build. Gasoline inventory has recovered sharply since autumn 2012 and is now above the top of the seasonal range. Distillate inventory, which lingered below the bottom of the seasonal range for much of 2012, is now back within the seasonal range, albeit at the lower end. Implied all product demand was sharply down, falling 1.1mmb/d (-6.0%) WoW to 17.8mmb/d and below the bottom of the seasonal average. The drop in all product demand was mainly attributable to 0.5mmb/d falls in implied demand for both gasoline and the ‘other oil products’ category. However, the 52-week YoY average for all product demand continued to improve and is now at -1.6%, almost half the -3.3% of April 2012, suggesting that the pace of demand decline might be easing.
In our view, the EIA report reflected a continuation of important trends observable in 2012, namely that of weak demand, growing US production (and a resultant reduction in import requirements) and ample crude inventory with product inventory now building sharply. The EIA’s Short-Term Energy Outlook released this week has US domestic production growing a further 0.9mmb/d in 2013 and that is likely to be a key component threat to oil prices in the absence of a more sustained cut in OPEC outlook.
Colin Smith Marc Jacouris
VTB Capital analyst
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