Last week’s fall in crude stocks in the US was the result of higher demand rather than lower supply. This bodes well for our view that a relatively strong economic recovery in the US will boost oil demand there, helping to offset slightly weaker demand in the euro-zone and India.
US oil demand on the road to recovery
- Last week’s fall in crude stocks in the US was the result of higher demand rather than lower supply. This bodes well for our view that a relatively strong economic recovery in the US will boost oil demand there, helping to offset slightly weaker demand in the euro-zone and India.
- The EIA’s weekly US Petroleum Report, released earlier today, estimates that crude oil in commercial storage fell by around 5.9m barrels last week. This was larger than both the 3.6m barrel fall reported by the American Petroleum Institute (API) yesterday and the 2.7m decline expected by analysts surveyed by Reuters. As a result, stocks are now within touching distance of their five-year average. (See Chart 1.)
- The decline in US crude stocks came despite an increase in many of the indicators of supply. For example, we estimate that net imports were up by a little over 3m barrels on the week (see Chart 2), as a fall in imports was offset by a larger fall in exports. At the same time, oil production edged up to 11m barrels per day (bpd), though it is still some way off its pre-pandemic level of 12-13m bpd. (See Chart 3.)
- Meanwhile, indicators of oil demand in the US generally improved. Admittedly, inputs to refineries were flat on the week (see Chart 4), and gasoline stocks crept higher. However, implied gasoline demand increased by nearly 0.2m bpd on the week, and refinery utilisation rates were up by 1%-point. Together with a rise in implied demand for jet fuel and distillates, this points to a broad-based upturn in US demand.
- All in all, this week’s report suggests that the recent improvements we have seen in the US mobility data are starting to translate into stronger demand for oil. We think this trend will continue, which is a key reason why we expect oil prices to push higher in the coming quarters.
Chart 1: Commercial Crude Stocks (Mn. Barrels)
Chart 2: Weekly Change in Net Imports & Crude Stocks (Mn. Barrels)
Chart 3: Oil Production (Mn. BpD)
Chart 4: Inputs to Refineries & Commercial Crude Stocks
Sources: EIA, Capital Economics
Kieran Clancy, Assistant Commodities Economist, firstname.lastname@example.org