The disparity between crude and product stocks in the US continues to widen. Crude inventories, despite a 1.5 mb draw w/w, increased their positive difference to the five-year average by 1.3 mb, to 44 mb, and product inventories (excluding the estimated other oils category) fell by 4.4 mb relative to their five-year average and now stand 38.1 mb below it. Crude oil inventories in the Midwest increased yet again, led by Cushing, where stocks increased by 1.5 mb, despite TransCanada's force majeure for part of its shipment on the Keystone pipeline, which resulted in reduced flow from the 9th through to the 16th, with particularly low volumes on the 11th. In other words, the build at Cushing would have been higher still and is likely to continue as BP's Whiting refinery remains offline for conversion through to end January, largely offsetting other refineries returning from maintenance. As a result, we expect prompt WTI to remain under pressure in the coming weeks as the crude glut in the Midwest remains high and stocks continue to build, in line with our balances.
Among products, distillate inventories fell by 2.7 mb over the week, split fairly evenly between diesel and heating oil, and faster than the five-year average, thereby extending its gap to that average to 30.6 mb. The fall in inventories comes on the back of improving demand and continued high levels of exports (averaging above 1 mb/d since May this year) to Europe and Latin America. Moreover, winter weather has started to buoy heating oil demand and forecasts of a cold snap in the coming days are likely to provide further support, despite significant switching to natural gas in home heating. Given both where overall distillate stocks and the expectations of a rather cold winter, we would argue that US exports of distillates will struggle to continue at the current pace, without creating shortages in the US. The draw was the largest in the East Coast, where stocks fell by 1.6 mb, taking them to the lowest levels since May 2008. Meanwhile, gasoline inventories drew counter-seasonally by 1.55 mb, with the largest draw in the Gulf Coast (of 2.1 mb) and a build in the East Coast (1 mb), in line with our view, as the resumption of the Colonial pipeline and the Jones Act waivers that have been granted resulted in some of that Gulf Coast inventory being moved to the East Coast.
With the effects of Hurricane Sandy no longer distorting data, this week's statistics reflect more normalised demand. Gasoline demand remained broadly flat at 8.9 mb/d, whilst the distillate reading of 4.2 mb/d was its highest levels since December 2011. Total US demand in November-to-date remains robust, at 19.3 mb/d, despite the distortions earlier in the month brought about by Hurricane Sandy, it is running higher y/y by 1.3%, led by gasoline, higher y/y by 3.8%. Although preliminary, distillate demand seems to have improved materially, higher y/y by 0.2% in the month-to-date, following five straight months of decline from June onwards.