US Department of Energy

Published at 16:52 11 Oct 2012 by . Last edited 09:29 20 Apr 2016.

Global market conditions of extremely tight products markets but a fairly steady crude oil markets were reflected in today's EIA data release. While crude oil inventories declined by 0.3 mb relative to the five-year average, despite the 1.7 mb weekly build, products were once again the standout features of this week's data release. Total products stocks, excluding the other oils, fell by 5.9 mb and are currently a substantial 42 mb below the seasonal average. Over the week, gasoline inventories declined by 0.5 mb, expanding their difference to the five-year average to 9.3 mb (see Figure 4). East Coast gasoline supplies dropped further to just 45.1 mb, the lowest since the end of September 2008 (see Figure 12). Gasoline supplies should start their seasonal build over the next few weeks; however, given the current landscape of refinery outages, supplies could remain tight for a while longer. Domestic gasoline production fell again, by 89 thousand b/d, and remains lower y/y by 173 thousand b/d. Gasoline imports also remained depressed, falling by 71 thousand b/d to just 0.5 mb/d, with the four-week average moving below last year's levels (see Figure 16).

In our view, however, the tightness is far more acute in the distillate market. While inventories should be on their seasonal decline, the pace of the fall is significantly faster than the five-year average. Over the week, distillate inventories declined by 3.2 mb, split evenly between diesel and heating oil, widening their difference to the average by 2.3 mb to 30.3 mb (see Figure 5). Moreover, the starting point for these sharp draws is substantially lower than normal, making the fall in inventories that much more supportive for heating oil and diesel prices in the short run. Domestic distillate production fell sharply by 253 thousand b/d, with Citgo's Corpus Christi refinery the latest US refinery to shut down following yet another fire, more than compensating for lacklustre demand conditions. Indeed, the final reading for September pegged diesel demand at 3.715 mb/d, down y/y by 221 thousand b/d (5.6%), compared to gasoline demand, lower y/y by 71 thousand b/d (0.8%). Total demand was lower y/y by 0.5 mb/d (2.6%) at 18.391 mb/d, a significant improvement from the near 1 mb/d (5%) decline seen earlier in the month. The first few days of October showed a continuation of the trend, with gasoline demand lower y/y by 62 thousand b/d (0.7%), but distillate demand remaining weak and lower by 181 thousand b/d (4.5%).

Cushing inventories built by 0.3 mb over the week; In our view, with Canadian upgrader maintenance coming to an end but US Midwest refineries heading into turnaround season, there is little to be positive about prompt month WTI in the near term.

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