EIA data for the week to 26 July recorded a slightly dissonant set of outcomes, with crude inventory rising against expectations of a decline, gasoline rising instead of falling and distillate falling instead of rising. However, none of the moves was large enough to be particularly meaningful for the oil price, in our view. Moreover, on our calculations, crude inventory should have fallen 2.1mmbbl, instead of rising 0.4mmbbl, as actually reported.
In any event, the net outcome, with respect to crude inventory, is that the four week run of draws came to an end, with inventory stabilising just below the top of the five-year range (Figure 1). That was the result of a further WoW increase in crude imports, which have picked up quite sharply over the last four weeks, increasing a total of 0.8mmb/d since the end of June (Figure 2). In addition, refinery throughput fell 0.1mmb/d WoW (-0.4%) while domestic production was essentially flat WoW at 7.5mmb/d.
Although refinery throughput fell WoW, it remains extremely high by historical standards, at 16.0mmb/d, which might explain the increase in crude imports as a bid to maintain days forward cover at about average.
Implied US all product demand eased 0.1mmb/d WoW (-0.6%) with implied demand for gasoline and residual both increasing by a touch under 0.2mmb/d WoW, while distillate demand fell 0.3mmb/d. On a cumulative average basis over the last 52 weeks, all product demand is now showing a small YoY increase of 0.3%, although the equivalent demand trends for gasoline and distillate remain marginally negative but continue to improve.
Brent has shown minor signs of easing from the recent USD 109/bbl peak which we believe was mainly driven by rising tension in the Middle East, gaining new impetus from Egypt and from Libya where protest action did actually impact oil supply, something we believe is unlikely to flow directly from events in Egypt. An early report from Bloomberg on OPEC production for July suggests production fell 245kb/d MoM, mainly as a result of a further substantial, 330kb/d MoM drop in production from Libya. While wobbles in OPEC production are likely to be supportive to higher prices, at 30.7mmb/d, production still looks well ahead of the call on OPEC crude, we believe, and unless tension escalates or credible new supports to oil pricing emerge, we continue to believe that the overall thrust of price movement is likely to remain negative.
The US EIA data recorded a 0.4mmbbl crude inventory build (vs. -2.5mmbbl expected), a 0.5mmbbl draw in distillate (vs. +0.5mmbbl expected) and a 0.8mmbbl build in gasoline (vs. -1.5mmbbl expected).