Last week's trend of larger than average product stock builds and falling crude inventories intensified in the latest EIA weekly data, with crude oil stocks falling by 2.4 mb w/w and 1.6 mb relative to the five year average, but product stocks (excluding the estimated ‘other oils' category) rising by 9.9 mb w/w and by 7.1 mb relative to the five-year average. The build in products was led by gasoline, in line with our view, where inventories increased by 7.9 mb, taking gasoline stocks above the five-year average for the first time since April 2012; they currently stand higher by 4.4 mb. However, the builds in the East Coast were highly tempered, with gasoline stocks increasing by just 0.5 mb, despite higher w/w imports and rising runs. With the 0.07 mb/d Port Reading now fully operational following a power failure earlier in November, together with the restart of the Bayway refinery, US East Coast gasoline inventories, too, are likely to follow a similar rising trend. With refinery runs rising sharply across the country to 15.4 mb/d, distillate stocks built too, by 3 mb, although they still remain below the five-year average by 29.3 mb. Moreover, heating oil stocks fell w/w, by 0.5 mb, and remain below the five-year average by 18.9 mb. Overall, while a large proportion of the product builds were East of the Rockies, the increase is nonetheless a clear indication that the return in refineries from outages or maintenance is set to weigh on product stocks as refineries increase their runs in an environment of still fairly decent margins.
Meanwhile, the drop in crude stocks was driven by the sharp increase in refinery runs, offsetting a rise in crude imports. Crude inventories at Cushing fell by 0.2 mb, despite the Whiting refinery remaining offline, as other refineries in the region increased their take up. However, our view remains that in the short term, balances in the Midwest look bearish, with inventories only starting to clear up early next year.
Demand indications were poor for the second straight week, with total US demand at 18.337 mb/d, in direct contrast to the improving macroeconomic data. For instance, earlier today, both US factory orders and US non-manufacturing ISM beat consensus expectations and increased in November. Gasoline demand, although supposed to weaken seasonally, was substantially lower than the seasonal norm, while distillate demand fell to just 3.544 mb/d. Across November (with just 1 day's demand data missing), gasoline demand is higher y/y by 1.1% and distillates is lower by 4.8%. Although the uncertainty about the fiscal cliff is likely to keep business sentiment weak and hence weigh on manufacturing activity, and in turn diesel demand, we expect the cold winter to provide something of a boost to distillate demand in the coming weeks, especially when compared against an extremely warm winter last year.