US distillate stock levels had been low during the whole of 2013 but have now dropped distinctly low in both absolute terms and in terms of Days Forward Cover (DFC), the EIA data for the week to 24 January shows. Distillate inventory dropped 4.6mmbbl WoW, more than double market expectations, and is comfortably below the bottom of the seasonal range. In terms of DFC, distillate inventory was reduced to 30.9 days, compared with the seasonal average of 40.2, after the sharpest drop in more than five years. Meanwhile, implied demand for distillate jumped 0.7mmb/d (+20%) WoW to 4.5mmb/d, the highest since 2008, potentially driven by higher consumption for residential heating purposes.
Crude inventory levels were up for a second week in a row, rising 6.4mmbbl WoW to 357.6mmbbl against market expectations of a 2.6mmbbl increase. On an absolute basis, crude stocks levels are comfortably above average but in terms of DFC, crude inventory remains low, below the bottom of the seasonal range.
Implied all-products demand rose sharply, up 1.1mmb/d (+5.7%) WoW to 20.0mmb/d and to the top of the seasonal range. That was driven by the rise in distillate demand but also on stronger demand for gasoline, up 0.5mmb/d (+6.5%) WoW to 8.6mmb/d and, for the first time this year, above the seasonal average. Demand for residual fuel oil, which was the main driver in last week’s demand numbers, abated, down 0.3mmb/d (-56.7%) WoW to 0.2mmb/d. On a 52-week average basis, all-products demand remained at 2.0% YoY.
Domestic crude production was down 12kb/d WoW to 8,044kb/d, and is possibly being hampered by the cold weather. The increase in domestic production growth has stalled since production surpassed the 8mmb/d mark in late November and would have to pick up the pace if it is to match the 1mmb/d YoY growth the EIA pencilled in its latest forecasts for 2014.
Total US oil stocks are low and, now, below the bottom of the seasonal range having trended lower since mid-October 2013. Low oil stocks have been a theme across the OECD, with the US a notable exception until more recently (see IEA Data – OECD demand upgraded, of 22 January). We continue to expect low oil inventories to be supportive for oil prices, in line with our view of a firmer start to the year for Brent.
The US EIA data recorded a 6.4mmbbl build in crude inventory (vs. +2.6mmbbl expected), a 4.6mmbbl draw in distillate inventory (vs. -2.1mmbbl expected) and a 0.8mmbbl draw in gasoline inventory (vs. +1.4mmbbl expected).