In the latest weekly EIA statistics, despite a w/w build in product stocks, total product inventories declined by 1.3 mb relative to the five-year average. Gasoline stocks increased for the eighth straight week, by 1.9 mb, despite a drop in imports. Although the gasoline build was substantially lower than the average build for this time of the year (4.7 mb), Gulf Coast gasoline stocks hit a record high of 83.8 mb. Given that gasoline stocks have increased by a cumulative 34.6 mb over the past eight weeks, at a rate of 0.6 mb/d, and given the recent weakness in naphtha prices (implying greater availability in the gasoline blend pool), we see gasoline remaining oversupplied in the near term. Distillate inventories, meanwhile, increased by 1.7 mb, further narrowing their gap to the five-year average, to 16.5 mb, with diesel stocks rising by 3.3 mb on the week.
Crude inventories declined by 1 mb over the week and by 2.4 mb relative to the seasonal average, with lower imports dwarfing the decline in refinery runs (the lowest in eight weeks). With nearly 1.5 mb/d of refinery maintenance scheduled in January, and a fairly hefty schedule of turnarounds through to May, we expect crude stocks to start building in the coming weeks. Interestingly, high levels of refinery runs coinciding with high Canadian imports (with imports into the Midwest remaining above 1.9 mb/d for the second week running, compared to an average 1.5 mb/d in Q4) will test the expanded Seaway's (0.4 mb/d) ability to start clearing Cushing balances. Last week, Cushing stocks increased by 1.8 mb and overall Midwest inventories by 2.3 mb, although the builds were largely expected, given Seaway's closure for a week before the expansion on Friday. US Midwest refinery maintenance picks up substantially in March and April and should Canadian imports stay at current high levels (on the proviso that we do not see cutbacks in Canadian output), Seaway may not be sufficient to clear Cushing inventories in the coming months, even if we see inventories draw in the near term.
Yet another week of fairly lacklustre US demand emerged in the latest data, despite a pick-up in demand w/w in both gasoline and distillates. In the month-to-date, gasoline demand is running higher y/y by 0.5%, at 8.227 mb/d, but distillate demand remains extremely weak, down by 12.4%, at 3.338 mb/d. With a cold snap forecast in the US at the end of January, we expect distillate demand to pick up in the coming weeks, although a resolution to the debt ceiling will be necessary to significantly boost diesel demand through higher US growth. Overall US demand is running lower y/y in January-to-date by 2% at 17.894 mb/d, the lowest since the Hurricane impacted month of September 2008, with uncertainty around investment arising from the debt ceiling negotiations weighing in our view.