US EIA data for the week to 24 May recorded significantly more bearish inventory data than the market had been expecting, notably a 3mmbbl build in crude inventory. Total US inventory continues to trend higher and remains above the top of the fiveyear range. While crude inventory is the main driver to current high inventory levels, gasoline inventory is at the top end of the range and distillate inventory is picking up toward the average.
All-product demand fell 0.6mmb/d to 18.3mmb/d, dropping back to the bottom of the five-year range as implied distillate demand largely reversed the previous week’s sharp increase and despite a further pick up in gasoline demand ahead of the Memorial Day long weekend which marks the start of the driving season. Despite the increase, implied gasoline demand was only at the bottom of the five-year range and overall cumulative demand on a comparative 52-week basis for all products is essentially flat.
Refinery utilisation fell 0.9%, in contrast to the 0.3% increase anticipated in the market and counter to the usual seasonal trend. The drop in throughput was largely confined to Mid-Continent, PADD II and was likely due to refinery problems, given continuing robust refining margins in the Mid-Continent, we expect.
Domestic US crude production partly reversed the decline over the previous two weeks, rising 34kb/d WoW but the overall trend remains sharply up.
OPEC meets today and we expect a non-contentious meeting with a rollover of the existing 30mmb/d production target (see RMC of 30 May). However, this EIA dataset confirms the high and rising level of US inventory while preliminary production data indicates that OPEC production increased MoM for May, with Saudi production rising 170kboe/d, according to Bloomberg. Against that backdrop, we continue to believe that the near term price risk for Brent remains to the downside.