This week’s EIA data saw a sharp increase in implied all product demand, up 1.0mmb/d (+5.5%) WoW to 19.0mmb/d, closing in on the seasonal average. Demand was stronger than year-ago levels (+2.1%), while its a 52-week YoY average continued to improve and is now -0.9%, from -1.1% last week. It was the ‘other oil products’ category that saw the greatest WoW increase in implied demand, up 0.6mmb/d (+22.8%). Implied demand for distillates also strengthened, up 0.3mmb/d (+8.8%) WoW to 3.9mmb/d. However, implied demand for gasoline (the largest of the product categories) was flat WoW at 8.4mmb/d and close to the bottom of the seasonal range.
There was a draw in total crude, ex-SPR, plus products (gasoline and distillate) inventory. That was the first such draw in the year, as a small build in crude inventory was more than offset by an unexpected draw in gasoline inventory and a relatively large draw in distillate inventory. The product draws came despite a 0.3mmb/d increase in product imports and very high refiner and blender production.
Meanwhile, after languishing in sub-7mmb/d territory for three weeks in a row, US domestic crude oil production picked up again, up 67kb/d WoW to reach 7,064kb/d, a 20 year high.
In our view, this was a bullish report for oil prices, which have been rising since mid-January. This rise in oil prices is most likely reflective of the oil market proving tighter than previously expected, mainly as a result of the sharp drop in OPEC production through 4Q12, we believe. In addition, heightened geopolitical risk, positive economic data and rising risk appetite have also proved constructive, we think. However, OPEC production looks to be stabilising and might well start to increase prospectively into seasonally weaker 2Q demand. We would expect that to result in pressure on current price levels, with the extent of the reaction likely to provide a clearer guide to the probable FY13 outcome.