US EIA data for the week to 14 June saw a stronger than average build in total US inventory, up 6.8mmbbl WoW, taking inventory levels further above the top of the seasonal range. Total inventory is now just 9.2mmbbl short of the all-time high of September 2010. Crude inventory rose both unexpectedly and counterseasonally, up 0.3mmbbl where the market was expecting a 0.5mmbbl stock draw. A second consecutive 0.6mmb/d WoW increase in crude imports more than offset a rise in refinery crude throughput and a drop in domestic production, and was the key factor behind that crude inventory build.
All-product demand partially recovered from last week, rising 0.5mmb/d (+2.8%) WoW to 18.4mmb/d. However, demand remains weak, below the bottom of the seasonal range and on a downward sloping trend since the beginning of May despite incremental demand as a result of the driving season. In fact, this week’s rise in demand was attributable to a 0.4mmb/d WoW jump in implied demand for jet kerosene, from below the bottom of the seasonal range to 1.6mmb/d, and now above the top of the range. The last such increase in demand for jet kerosene was immediately followed by a downward correction toward the YTD average of 1.4mmb/d. Gasoline demand gained 0.2mmbb/d (2.2%) WoW to 8.8mmb/d, the second highest level YTD, clearly boosted by the driving season but still at the bottom of the seasonal range. The cumulative average demand on a 52-week basis for all-products remained flat YoY.
Domestic US crude production was down 85kb/d WoW, and follows last week’s 76kb/d drop in production. This week’s production drop is largely attributable to reduced Alaskan production, likely due to maintenance, we believe. The growth rate since the beginning of the year implies full year average crude production at around 7.2mmb/d, or a 0.7mmb/d (+11%) YoY increase and 0.1mmb/d below the EIA’s estimates per the latest Short Term Energy Outlook.
The Brent price remains elevated, around the USD 106/bbl, reflecting increased tension in the MENA region, we believe, particularly regarding Syria. However, this set of EIA data confirms the high and rising level of US inventory against a weakened demand backdrop. With OPEC production above the ‘call on OPEC crude’ and expected to rise, subject to developments in Libya, we continue to believe that the near-term price risk for Brent remains to the downside.