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EIA data – Substantial crude inventory build


This week’s EIA data saw crude inventory build 5.9mmbbl, more than double market expectations. Crude inventory levels have been high since April 2012, remaining above the top of the seasonal range in absolute terms, and now by some margin, while in terms of Days Forward Cover (DFC), crude inventory levels have been comfortable since mid-2012, despite high refinery utilisation. The surprisingly strong build in crude inventory came on the back of a 0.3mmb/d pick-up in crude imports but also a 0.3mmb/d increase in refinery throughput. Domestic crude oil production was largely flat WoW, meaning that roughly 2mmbbl of the inventory build remains unaccounted for.

Gasoline inventory levels look much more normal following two successive unexpected and counter-seasonal draws which have taken the spread over the seasonal average from 13.5mmbbl to just 4.4mmbbl. After a significantly stronger than expected draw, distillate inventory remains comparatively low, even though inventory had re-built somewhat in November and December of last year. On a total crude and products basis, the inventory build in the week to 25 January broadly matched expectations.

Implied all product demand was roughly flat WoW at 18.7mmb/d, after a 0.3mmbb/d WoW improvement in distillate demand was negated by reduced demand for residual fuel oil and the ‘other oil products’ category. While 18.7mmb/d is some distance from the seasonal average, it is 5.5% higher YoY for that week in the year.

The recent expansion of the Seaway pipeline, from 150kb/d to 400kb/d, has in our view, contributed to the narrowing of the WTI discount to Brent on the advent of increased takeaway capacity from Cushing. That narrowing of the discount has come in spite of record, and rising, inventory levels at Cushing and recent operational hiccups which have lately restricted Seaway capacity back to 175kb/d.

Oil prices have risen lately, with Brent even trading intraday above the USD 115/bbl mark, likely on the back of growing geopolitical concerns over the MENA region and mixed, but arguably positive, economic data and an increase in risk appetite. However, supply/demand fundamentals remain negative, in our view, and while not as soft as previously expected, we continue to see downside risk to oil prices.

Colin Smith, Marc Jacouris
VTB Capital analyst

EIA, gasoline, oil

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