US oil demand rose y/y by 1.1 mb/d to 21.3 mb/d in August, a 25 thousand b/d downward revision from the weekly EIA estimates, compared to our expectations of a 0.4 mb/d downward revision. Combined demand for the four main products increased by 0.23 mb/d y/y in August, while demand for ‘other oils’ grew y/y by 0.83 mb/d to 5.2 mb/d.
US gasoline demand fell by 4 thousand b/d y/y to 9.75 mb/d, despite vehicle miles travelled (VMT) rising by 1.2% y/y in August. Higher US gasoline prices, which increased by 44 cents y/y to $2.83 per gallon in August, likely tempered growth. PADD 3 and PADD 5 saw y/y growth of 4 thousand b/d and 31 thousand b/d respectively.
US distillate demand increased by 0.17 mb/d y/y to 4.2 mb/d, as the ISM manufacturing index increased to a 14-year high in August, rising by 5.5% m/m. The Freight Transportation Service Index (TSI) reported a 4.6% y/y increase in August, ending 0.7% below its all-time high of 136.2. Freight movements between the US, Mexico and Canada remain healthy—freight by truck was the preferred mode with a 5.7% y/y increase, moving $66.6 billion of freight, while freight by rail increased by 5.5%, moving $15.5 billion.
US crude exports dropped in August, by 0.39 mb/d m/m to 1.75 mb/d—the lowest level since March of this year. Exports to Canada fell by 50 thousand b/d m/m, but flows into Europe rose slightly to 0.33 mb/d in August (from 0.31 mb/d in July). The major drop was due to Asian buying interest collapsing m/m, by 0.31 mb/d, to 0.78 mb/d in August (although still up y/y by 0.45 mb/d). This fall comes on the back of the Chinese tariff war with the US, as flows to China fell m/m by 0.38 mb/d, hitting zero for the month of August. While Chinese imports stopped, demand from other Asian nations was strong—0.19 mb/d of crude was bound for India, 0.27 mb/d for South Korea and 0.19 mb/d for Taiwan. Exports likely recovered above 2 mb/d in September as other Asian countries continued to step up buying. Additionally, we expect October exports to exceed 2 mb/d again on massive exports to Europe, which are expected to approach 0.74 mb/d for the month, as even countries such as Ireland and Greece have begun to import US crude. Freight is playing an extremely important role here as the spot arbitrage to Asia has been shut (notwithstanding baseload barrels) since the spike in VLCC rates in October, forcing more barrels to point to Europe. In recent weeks, with Suezmax rates also soaring, arbitrage economics to Europe have also started to become challenging, which may lead to cancellations of previously-booked cargoes and hence lower November loadings to Europe.