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EIA Weekly US Oil Stock Report – Commentary 05/07/2012

Published Thursday, July 5th, 2012

The latest report from the EIA on US oil inventories was more on the bullish side but the optimism might not last long. We had a bigger-than-expected draw in crude oil inventories and the main product stocks were also less bearish than anticipated. Additionally, total commercial stocks dropped by 4 mln bbls, the first significant fall in 15 weeks. Despite the decrease they are still 32.5 mln bbls or 3% higher than a year ago and 27.8 mln bbls or 2.5% higher than the 5-year average.

The drop in crude oil inventories  was expected although it was bigger than the forecast and also bigger than the API figures. It was due to production shutdown in the USGC because of the first hurricane of the season 2 weeks ago.  It is therefore not surprising at all to see that 4.3 mnln bbls of this draw took place in PADD3. Such a draw might have been in the prices but NYMEX crude could get a boost from the fact that PADD5 built 3.4 mln bbls and PADD1-3 combined fell more than 5.5 mln bbls. Despite PADD2 stocks were down Cushing, Oklahoma built by 225,000 bbls. Stock at the NYMEX delivery point are only a nudge below the all-time high of 47.775 mln bbls reached at the beginning of June. Despite the nationwide drop total crude oil stocks are still 24 mln bbls or 6.4% higher than a year ago and 33 mln bbls or 8.6% above the 5-year average.

The relatively bullish data on the main product categories are possibly due to falling refinery utilization that was down 0.6% to 92% last week. The US East Coast was responsible for this drop; utilization fell by 4.2% to 81.4%. For this reason both distillate and gasoline fell hard in PADD1 (1.1 mln bbls and 1.75 mln bbls respectively). Distillate inventories are 24 mln bbls or 21% lower than this time of last year and 21 mln bbls or 18% lower than the 5-year average. The same figures on gasoline are -7.6 mln bbls (-3.7%) and -6.8 mln bbls (-3.35).

Total product demand shows some signs of revival. It increased by 0.9% to 19.17 mbpd compared to a year ago on the 4-week average basis. Gasoline demand fell 4.3% to 8.92 mbpd and distillate demand rose by 3.8% to 3.72 mbpd.

If one accepts that this week’s bullish figures are mainly due to hurricane related production shutdown in the US Gulf then it is fair to say that next week we should see a reversal in trend and stocks should be growing.

Posted by Tamas Varga

Tamas Varga has been in the oil industry since 1992 and with PVM for 18 years. During his time in the industry he has gathered a range of experience in the oil markets. At PVM Tamas is in charge of data collection and analysis.