This week’s EIA data had US crude oil production up 66kb/d WoW (+0.9%) at 7,159kb/d, having previously broken through the 7.1mmb/d level three weeks ago but subsequently languished below that point. The growth rate since the beginning of the year implies full year average crude production of 7.5mmb/d, or YoY growth of 1.0mmb/d (+15.3%). That is higher than the 0.84mmb/d YoY growth in US liquids supply that the IEA and EIA currently forecast.
Crude imports rose 0.2mmb/d (3.1%) WoW to 7.5mmb/d. There was an unexpected drop in refinery utilisation to the bottom of the seasonal range. That was due to a 300kb/d capacity increase in the Gulf Coast district rather than a fall in refinery crude throughput, which was flat WoW at 14.0mmb/d.
Crude oil inventory rose 2.6mmbbl (+0.7%) WoW, and has been on a relentless upward trajectory since the beginning of the year. Crude inventory has now reached 384.0mmbbl, comfortably above the top of the seasonal range and just 3mmbbl below the five year maximum set in June last year.
Implied all product demand rose 0.3mmb/d (0.1%) WoW to 18.6mmb/d, tracking the trend set last year at the bottom of the seasonal range. Implied demand for gasoline reversed last week’s 0.2mmb/d fall to rise to 8.6mmb/d, but implied demand for distillate collapsed 0.5mmb/d (+13.2%) WoW to 3.3mmb/d and below the bottom of the seasonal range. On a 52-week YoY average basis, all product demand remained flat WoW at -0.4%.
The Brent price lost further ground yesterday, falling to USD 108/bbl at the time of writing. In contrast, WTI held its ground at USD 92/bbl, possibly in consideration of the sharpest WoW drop in inventory levels in Cushing, Oklahoma, the physical crude’s pricing point, since May 2011. That meant the crude differential narrowed to USD 16/bbl having been as wide as USD 23/bbl earlier in the year.
The IEA published its monthly Oil Market Report yesterday. It had OPEC production rising in February to 30.49mmb/d and cut its ‘call on OPEC crude’ for 2013 to 29.7mmb/d. Assuming OPEC production levels are maintained for the remainder of the year, that would imply a market over-supply of 0.8mmb/d for 2013, a 60% increase on the previous month’s assessment. OPEC production might well continue to increase prospectively into the seasonally weaker second quarter demand, we believe. We would expect that to continue to pressure oil prices.