Commercial crude stocks continued to fall in the latest weekly data, but this was a reflection of lower supply and higher exports than a recovery in consumer demand. However, all the signs point to robust US economic growth, which we think will boost petroleum product consumption later this year.
Despite a slow start, product demand should pick up this quarter
- Commercial crude stocks continued to fall in the latest weekly data, but this was a reflection of lower supply and higher exports than a recovery in consumer demand. However, all the signs point to robust US economic growth, which we think will boost petroleum product consumption later this year.
- The EIA’s weekly US Petroleum Report, released earlier today, estimates that crude oil in commercial storage fell by around 3.5m barrels last week, which was more than the 2.6m draw reported by the American Petroleum Institute (API) yesterday, as well as the 1.4m decline expected by analysts surveyed by Reuters. Stocks are now moving closer to their five-year average. (See Chart 1.)
- A number of factors help to explain the fall in stocks including a tick-up in the refinery utilisation rate to 85% from 83.9% a week earlier, slightly higher growth in exports than imports and a 200,000 bpd drop in US crude production. (See Chart 2.) Having recovered quickly from the snowstorms in February, production now looks set to stabilise around 11m bpd given the lacklustre growth in drilling rigs.
- Perhaps of more interest though was the chunky build in stocks of products, particularly gasoline. (See Chart 3.) Implied gasoline demand ticked down, although it remained above the five-year average. (See Chart 4.) For now, it appears that despite the rapid easing of virus-related restrictions and ongoing fiscal stimulus, households remain fairly cautious. That said, we still expect gasoline consumption to pick up strongly in the coming months as the weather warms and mass vaccination continues.
- There was only a muted reaction to the data in the oil market, perhaps because the fall in crude stocks was offset by higher product inventories. It is probably also the case that supply concerns are taking centre stage this week given the talks with Iran in Vienna and last week’s OPEC+ decision to raise output.
Chart 1: Commercial Crude Stocks (Mn. Barrels)
Chart 2: Crude Oil Production (Mn. BpD)
Chart 3: Gasoline & Distillates Stocks (Mn. Barrels)
Chart 4: Implied Gasoline Demand (Mn. BpD)
Sources: EIA, Capital Economics
Caroline Bain, Chief Commodities Economist, firstname.lastname@example.org