The latest EIA statistics showed a second straight week of product stock decline, by 3.9 mb, relative to the five-year average. The decline was led by distillates, which fell by 2.3 mb w/w, more than the seasonal norm, with the gap to the five-year average expanding again, to 16.5 mb. After eight straight weeks of gasoline stocks builds, the latest draw of nearly 1 mb was the second consecutive counter-seasonal draw, almost halving the surplus to the five-year average to 3.9 mb. Significantly though, the decline in gasoline inventories was spread across the US except the all-important East Coast, where a sharp increase in gasoline imports (higher w/w by 0.2 mb/d) resulted in a 1.2 mb build. Although the recent news of the 70 thousand b/d Port Reading refinery closure boosted RBOB gasoline prices, higher imports may somewhat ease concerns of possible shortages during periods of strong demand or refinery maintenance.
Commercial crude stocks built w/w by 5.9 mb, an increase of 1.3 mb relative to the five-year average. There was an additional 0.2 mb that headed into the SPR, following a 0.3 mb SPR build three weeks ago. On commercial inventories, a large part (1.7 mb) of the build was in the logistically isolated West Coast, while the Gulf Coast (1.9 mb) and the East Coast (1.4 mb) were also substantial. Despite more refineries heading into maintenance, refinery runs increased w/w by 0.27 mb/d, although the sharply higher crude oil imports, up w/w by 0.34 mb/d to 8.07 mb/d, countered all the increase in crude demand from refineries. We expect refinery runs to fall in the coming weeks, given the large turnaround schedule in the US through to April and therefore expect crude inventories to build. With infrastructure problems at Jones Creek reducing the flow on Seaway to 0.175 mb/d and the pick-up in Canadian imports, Cushing inventories built by 0.3 mb last week. Since then, Seaway flows are reported to have picked up to around 0.225 mb/d, but remain lower than the 0.29 mb/d the pipeline was running at prior to the problems at Jones Creek, and significantly lower than the 0.4 mb/d capacity, with congestion at Katy, the pipeline hub in North East Houston, causing the current backlog.
Demand was higher for the fourth straight week, albeit marginally, with total US demand at 18.681 mb/d. In January-to-date, total US demand is running higher y/y by 0.4%, led by strong gasoline demand at 8.366 mb/d (higher y/y by 2.2%) and petchem demand (higher y/y by 7%). Despite the w/w pick up in distillate demand, the overall weakness stands out, with the month-to-date average at 3.460 mb/d, lower y/y by 9.2%. The current cold spell in the US is likely to have boosted heating oil demand, but without a significant improvement in business sentiment (Q4 GDP contracted due to a sharp fall in public spending), we expect diesel demand to stay under pressure.