This week’s EIA data, released a day later than usual due to the Presidents Day holiday, had a 4.1mmbbl crude oil inventory build WoW, double market expectations. At 376.4mmbbl, crude inventory levels are at their highest since July 2012 and comfortably above the top of the seasonal range.
A 0.2mmb/d (+2.3%) WoW increase in crude imports contributed to the inventory gain, as did a 0.1mmb/d (-0.9%) WoW fall in refinery throughput. Refinery utilisation fell more than expected, down 0.9% WoW, to 82.9% utilisation as more refineries are being placed into maintenance.
US crude oil production grew 54kb/d (+0.76%) WoW, taking production above the 7.1mmb/d mark. The growth rate since the beginning of the year implies full year average crude oil production of 7.5mmb/d, or YoY growth of 1.1mmb/d (+16.6%). That is markedly higher than both the IEA’s and the EIA’s YoY growth forecast (0.72mmb/d and 0.86mmb/d, respectively).
A counter-seasonal 0.6mmb/d (-3.3%) WoW fall in implied all product demand erased much of last week’s gain, taking demand to 18.4mmb/d and back to the bottom of the seasonal range. That weakness in demand came from all of the product categories except gasoline, which saw a marginal increase in demand of 33kb/d. On a 52-week YoY average basis, however, all product demand improved to -0.7%, from -0.9% last week.
Crude oil prices have dropped relatively sharply recently. A number of reasons have been attributed to this fall in prices, including hedge fund selling in an overbought market, concerns that QE3, the Fed’s asset buying programme, could end earlier than expected and even possible positive developments on Iran. None of these are particularly convincing, in our view. However, while the market appears tighter than previously thought, it is oversupplied, even at current low OPEC production levels. Should OPEC production stabilise, or even pick up prospectively into seasonally weaker second quarter demand, we would expect that to result in further pressure on current price levels.