US EIA data for the week to 22 March recorded a 1.1mmb/d WoW jump in demand, likely contributing to larger than expected product draws, particularly of distillate. Crude inventory built quite sharply, by 3.3mmbbl and ahead of expectations, more than reversing the draw seen last week. Crude inventory remains well above the 5-year range, gasoline is at average levels and distillate is tracking the bottom of the range.
US implied all product demand jumped 6.2% WoW, almost reaching the five-year average. The principal driver to the spike in demand was a 0.6mmb/d (+17.9%) WoW increase in implied distillate demand which actually hit the top of the five-year range. We think this might partly reflect a late surge in demand for heating oil as colder than normal weather persists in the North East late into the heating season. The other products category also saw a notable 0.4mmb/d (+12.6%) WoW increase in implied demand taking it to near average levels. That swamped a higher than expected increase in refinery utilisation of 2.2% (vs. +0.45% expected) with throughput rising 0.4mmb/d WoW and flat product imports WoW.
Although inventory at Cushing increased slightly, by 439mmbbl WoW, having been edging down since the peak of 51.9mmbbl in January, the Brent-WTI spread continued to narrow, dropping USD 2.44/bbl to USD 13.95/bbl at the end of the EIA data reporting week and it has since eased further still. That is likely a testimony to the further build out of railway connections, we believe, but might also have been impacted by line filling on the Longhorn pipeline which will take Permian basin crude directly to Houston, by-passing Cushing, starting at 75kb/d in April and increasing to 225kb/d in 3Q13, according to the pipeline operator, Magellan.
Brent has shown some signs of stabilising in the last few days following the persistent slide from the near USD 120/bbl levels of mid-February. However, we think production data for March will continue to indicate that significant over-supply to the market persists, and it might also show an MoM increase in OPEC production. Assuming that is the case, we would continue to expect that the risk to oil prices lies to the downside.
The US EIA data recorded a 3.3mmbbl build in crude inventory (vs. +1.3mmbbl expected), a 4.5mmbbl draw in distillate (vs. -0.9mmbbl expected) and a 1.6mmbbl draw in gasoline (vs. -1.0mmbbl expected).