Even with the continued recovery in refinery activity, US crude stocks rose last week. However, we suspect that stocks will fall soon as refinery activity rises further and crude production holds steady.
Rising refinery output to weigh on commercial crude stocks
- Even with the continued recovery in refinery activity, US crude stocks rose last week. However, we suspect that stocks will fall soon as refinery activity rises further and crude production holds steady.
- The EIA’s weekly US Petroleum Report, released earlier today, estimates that crude oil in commercial storage increased by 2.4m barrels last week. This was broadly inline with the 3.0m barrel build expected by analysts polled by Reuters, but was in contrast to the 1.0m draw reported by the American Petroleum Institute (API) yesterday. Stocks in commercial storage are now back above 500m barrels. (See Chart 1.)
- Even though crude stocks are still rising in the US, the pace of builds has slowed sharply as refinery throughput is rapidly coming back online but also because domestic production has now seemingly stabilised at around 10.9m bpd. Refinery activity climbed up by 1.1m bpd to 13.4m bpd last week, although it remains very weak. (See Chart 2.) We anticipate that refinery throughput will continue to recover in the coming weeks as maintenance and repairs associated with the earlier freezing weather are completed. Meanwhile, the 0.2m bpd decline in net imports also weighed on stocks last week.
- Elsewhere, gasoline stocks ticked up a touch, but remain low by past standards (see Chart 3), as refinery activity increase and implied demand dipped. (See Chart 4.) That said, we expect gasoline demand to pick up in the coming weeks as the gradual relaxation of lockdown measures and the rollout of $1,400 per adult stimulus cheques should boost leisure and travel activity.
- Oil prices extended their losses after the publication of the EIA’s latest stocks report, in part because the easing of lockdowns had raised expectations for an increase in gasoline demand.
Chart 1: Commercial Crude Stocks (Mn. Barrels)
Chart 2: Crude Oil Inputs to Refineries (Mn. BpD)
Chart 3: Gasoline Stocks (Mn. Barrels)
Chart 4: Implied Gasoline Demand (Mn. BpD)
Sources: EIA, Capital Economics
Samuel Burman, Assistant Commodities Economist, email@example.com