In yesterday’s EIA Weekly Petroleum Status Report, US crude inventory was down 1.2mmbbl (-0.3%) WoW. That was only the third crude inventory draw YTD and came unexpectedly as market participants were instead looking for a 1.2mmbl build. Even so, the market appeared to pay little heed to that. Brent continued to trend lower, back into the sub-USD 100/bbl territory as at the time of writing.
As observed in recent weeks, the movement in crude inventory was curiously lower than the numbers suggest. Crude imports of 7.4mmb/d, 7.2mmb/d in domestic production and refinery crude throughput of 15.1mmb/d imply a crude stock draw of 3.4mmbbl for the week, compared to the 1.2mmbbl drawdown recorded. On Tuesday, the American Petroleum Institute (API) reported a 6.7mmbbl weekly drop in crude stockpiles, based on members’ voluntary reporting. However, even with a stock drawdown as deep as that implied by the API, US crude inventory still appears plentiful.
US crude oil production broke through the 7.2mmb/d mark, after growing 27 kb/d (+0.4%) WoW. The growth rate since the beginning of the year implies full year average crude production of 7.4mmb/d, or a 0.9mmb/d (+14.1%) YoY growth. That is a little higher than the 0.84mmb/d YoY growth in US liquids supply the IEA and EIA currently forecast.
Implied all-product demand rose 0.3mmb/d (+1.9%) WoW to 18.5mmb/d, but remains relatively weak, at the bottom of the seasonal range. Implied demand for both gasoline and distillate were down WoW, with gasoline demand remaining below the bottom of its seasonal range for the fifth week running and distillate demand close to the bottom of its seasonal range. Implied demand in the volatile ‘other oil products’ category rose 0.6mmb/d (+18.7%) WoW and provided the context for the weekly gain in all product demand. On a 52-week average basis, all product demand remained flat YoY.
Amidst a broader commodity sell-off, the key context for falling oil prices is the marked over-supply to the market that has been in place since 2012, we believe. We see potential for the Brent price to dip well into the USD 90s or lower, though we do expect OPEC to act to defend Brent at around the USD 100/bbl mark by withdrawing supply from the market.