US commercial crude stocks fell last week, while implied product demand strengthened. We expect these trends to continue over the coming months, as COVID-19 containment measures are eased.
Commercial crude stocks approaching pre-virus levels
- US commercial crude stocks fell last week, while implied product demand strengthened. We expect these trends to continue over the coming months, as COVID-19 containment measures are eased.
- The EIA’s weekly US Petroleum Report, released earlier today, estimates that crude oil in commercial storage decreased by 6.6m barrels last week. That was larger than the 3.5m barrel draw reported by the American Petroleum Institute (API) yesterday, and was in sharp contrast to analysts’ expectations of a 1.0m barrel build. The drawdown means that stocks have moved closer to their five-year average. (See Chart 1.)
- The decline in stocks was driven, in part, by a small increase in crude inputs to refineries. (See Chart 2.) Refineries are still operating comfortably below normal levels, which suggests that as demand continues to recover, refinery activity has further scope to rise. Meanwhile, a large one-off negative change in the EIA’s adjustment factor was also a contributor to the fall in stocks. Together, that offset a small pick-up in crude production and net imports.
- Elsewhere, implied product demand increased from 18.5m bpd to 20.2m bpd, with gains in demand across all product categories. Implied gasoline demand rose by less than most other products and still remains much lower than pre-virus levels. (See Chart 3.) This weakness has meant that gasoline stocks have continued to rise. (See Chart 4.) Nonetheless, with US virus cases trending lower and the vaccine rollout intensifying, we anticipate that an easing of restrictions should boost transport activity and, in turn, gasoline demand over the coming months.
- Unsurprisingly, given the sizeable fall in stocks, oil prices rose in the wake of the EIA’s latest report.
Chart 1: US Commercial Crude Stocks (Mn. Barrels)
Chart 2: Crude Inputs to Refineries & Stocks
Chart 3: Implied Gasoline Demand (Mn. BpD)
Chart 4: Gasoline & Distillate Stocks (Mn. Barrels)
Sources: EIA, Capital Economics
Nicholas Farr, Assistant Economist, firstname.lastname@example.org