US commercial crude stocks fell slightly last week, while implied product demand also ticked down. And, with new US virus cases still at very high levels, we think that it probably won’t be until next year – once vaccines can have a material impact – that demand recovers to more normal levels.
Demand to remain subdued … for now
- US commercial crude stocks fell slightly last week, while implied product demand also ticked down. And, with new US virus cases still at very high levels, we think that it probably won’t be until next year – once vaccines can have a material impact – that demand recovers to more normal levels.
- The EIA’s weekly US Petroleum Report, released earlier today, estimates that crude oil in commercial storage fell by 0.8m barrels last week. This was in contrast to analysts’ forecasts of a 0.1m barrel build and the 3.8m increase reported by the American Petroleum Institute (API) yesterday. That said, despite the drawdown, stocks remain 6% above their five-year average. (See Chart 1.)
- The main reason for the decline in stocks was an increase in crude inputs to refineries and a higher refinery utilisation rate. (See Chart 2.) This was unsurprising given that refineries typically increase their activity at this time of year anyway as winter approaches.
- Meanwhile, the fall in stocks was despite a 100,000 bpd rise in crude production to 11.0m bpd.
- Elsewhere, implied product demand decreased slightly from 19.6m to 19.2m bpd (see Chart 3), with small falls in both gasoline and distillate demand. On a more encouraging note, implied demand for kerosene picked up by around 200,000 bpd, which probably owed to increased air travel ahead of the Thanksgiving holiday. (See Chart 4.) Nonetheless, we expect that a combination of household caution and state level restrictions will weigh on demand from the transport sector, at least until vaccines are rolled out.
- The price of WTI was relatively steady after the report, but is up around 7% this week on vaccine news.
Chart 1: Commercial Crude Stocks (Mn. Barrels)
Chart 2: Crude Inputs to Refineries & Stocks
Chart 3: Implied Product Demand (Mn. BpD)
Chart 4: Implied Kerosene Demand & US Air Passengers
Sources: EIA, TSA, Capital Economics
Nicholas Farr, Assistant Economist, email@example.com