Despite the plunge in crude oil production, US crude stocks rose last week as refinery throughput plummeted. We expect the former to recover more quickly, which will support stocks in the near term.
Subdued refinery activity to bolster stocks in the coming weeks
- Despite the plunge in crude oil production, US crude stocks rose last week as refinery throughput plummeted. We expect the former to recover more quickly, which will support stocks in the near term.
- The EIA’s weekly US Petroleum Report, released earlier today, estimates that crude oil in commercial storage rose by 1.3m barrels last week. This was in line with the 1.0m barrel increase reported by the American Petroleum Institute (API) yesterday, but stood in stark contrast to the 5.2m draw expected by analysts polled by Reuters. Stocks are now once again slightly above their five-year average. (See Chart 1.)
- The main factor behind the uptick in crude stocks was the 2.6m bpd decline in refinery throughput (see Chart 2), as a result of the disruption caused by freezing weather. The plunge in oil throughput to refineries outweighed the drop in crude oil production, which fell by 1.1m bpd to 9.7m bpd. (See Chart 3.) As we articulated last week (see here), we expect that crude oil output will recover faster than levels of crude oil inputs to refineries, which should put upward pressure on crude stocks in the coming weeks.
- Meanwhile, implied product demand also took a large hit, as a result of the colder weather restricting travel in states such as Texas. In particular, implied gasoline demand cratered, falling by 1.2m bpd w/w, accounting for 60% of the weekly decline in implied product demand. (See Chart 4.) We expect gasoline demand to pick up again relatively quickly as temperatures normalise.
- Oil prices held onto their gains after the publication of the EIA’s latest report, probably as the build in crude stocks was similar to that previously reported by the API yesterday.
Chart 1: Commercial Crude Stocks (Mn. Barrels)
Chart 2: Crude Oil Inputs to Refineries (Mn. BpD)
Chart 3: Crude Oil Production (Mn. BpD)
Chart 4: Weekly Change in Implied Product Demand (Mn. BpD, 2021)
Sources: EIA, Capital Economics
James O’Rourke, Commodities Economist, +44 (0)20 3927 9834, firstname.lastname@example.org