The latest EIA data showed a build in crude stocks of 2.6 mb, the 8th consecutive week of builds, taking the cumulative increase to 23.6 mb. Although crude builds are seasonal for this time of the year, crude stocks have increased by 6.2 mb relative to the five year average over that period, with the latest data showing a 1.3 mb build relative to seasonal norms. Part of the higher than usual stock build relates to the earlier and larger than average level of refinery maintenance this year. Indeed, last week, the build was predicated on a combination of higher imports, higher domestic production and lower refinery runs, with runs falling below 14 mb/d for the first time in two years and utilisation down to 81%, 2.16% below the five year average. The build was based predominantly in the Gulf Coast, where imports were higher w/w by 0.12 mb/d, with imports from West Africa bouncing back to nearly 0.2 mb/d. With the recent strength in LLS and other Gulf Coast crudes, we expect imports to pick up in the coming weeks, helping to normalise prices in our view. Meanwhile, Cushing stocks drew by 1.5 mb, and stocks fell below 50 mb for the first time in 9 weeks, with lower flows into Cushing likely to have been the bigger driver. Over the past few weeks, Midland WTI prices have been strengthening and are now trading at a premium to Cushing WTI, with 1 mb of pipeline fill for the newly reversed Longhorn pipeline diverting crude away from Cushing, together with lower volumes from the North. As we had highlighted last week, WTI is one of the cheapest crudes in the US currently and we expect even lower Canadian flows next month (allocations are done for the month ahead), supporting Cushing balances. However, despite the large Cushing draw, US Midwest inventories increased by 0.6 mb. Although, given that imports into the Midwest fell by twice as much as the reduction in refinery runs in the region, the increase in inventories once again casts a shadow over the accuracy of the weekly EIA statistics of late.
Product stocks declined by 4.5 mb and by 0.7 mb relative to the five year average. The draws were led by gasoline, where inventories declined w/w by 3.6 mb, the fifth straight week of draws, with the cumulative decline at 10 mb. As a result, gasoline inventories are now below the five-year average by 1.4 mb. However, with refineries already pushing to maximise gasoline yields at a time when refineries are set to return from maintenance in the coming weeks, high gasoline cracks are likely to incentivise even higher production.
Demand picked up slightly w/w, with total US demand higher y/y by 2.3%, at 18.597 mb/d in the month-to-date, although a weak base is distorting. Distillate demand, however, remains exceptionally weak, despite both trucking and rail data showing improvements, lower y/y by 8.7%, acting as the main drag on an otherwise improving US oil demand.