US oil data shocks the market in more ways than one - EIA
Market Watch reported that an unexpected climb in US crude inventories wasn’t the only shock factor in the Energy Information Administration’s weekly report released. Stockpiles of gasoline and distillates also climbed last week despite a decline in refinery activity, as demand for the petroleum products took a significant hit. Gasoline supplies rose by 3.3 million barrels for the week ended June 2, while distillates, which include heating oil, jumped by 4.4 million barrels.
Analysts surveyed by S&P Global Platts were looking for a rise of 250,000 barrels for gasoline, with inventories of distillates expected to be unchanged.
Mr Tom Kloza, global head of energy analysis at the Oil Price Information Service said that “Refiners and marketers can’t be that shocked to see a post-memorial Day demand slump.“Most years see a brisk beginning to the driving season but demand then tends to lag until all schools have let out.”
Mr Kloza however, said the report from the EIA showed a “stunning” 1.418 million barrel-per-day drop in demand last week across all petroleum products.
The EIA report pegged total product demand at 19.340 million barrels a day. That included a drop of 505,000 barrels a day for gasoline demand and 520,000 barrels a day for distillate demand from a week earlier.
He said that “A 1.4 million barrel-per-day petroleum-demand drop is the kind of shift one associates with a catastrophic storm or economic plunge. The two-week record for gas demand has now given way to a four-week average that puts consumption about 0.7% below last year.”
‘Plentiful’ supplies
The US government agency also reported an unexpected climb of 3.3 million barrels in domestic crude inventories. That contradicted the drop of 4.6 million barrels for the week reported by the American Petroleum Institute late Tuesday—and was in contrast to the fall of 3.5 million barrels expected by analysts polled by S&P Global Platts.
Mr Phil Flynn, senior market analyst at Price Futures Group, said that “The market was geared up for a bid crude-oil draw and got blindsided.”
Even more shocking, the rise for crude inventories came despite a decline in domestic production and the “biggest weekly drop in Saudi imports ever,” according to Flynn.
EIA data show that US imports of oil from Saudi Arabia sank from 1.362 million barrels a day to 615,000 barrels a day last week from a week earlier.
Mr Matt Smith, director of commodity research at ClipperData, said that “Crude, gasoline and distillates inventories are all at or above the top of their five-year ranges. Supply remains plentiful.”
Not surprisingly, West Texas Intermediate crude prices on the New York Mercantile Exchange CLN7, +0.52% dropped to their lowest levels in a month. Gasoline RBN7, +0.48% and heating oil HON7, +0.80% futures also fell sharply, back down to early May levels.
The rise in inventories of petroleum products came even as refinery capacity utilization fell to 94.1% from 95% a week earlier. Less refinery activity points to less product production, but demand weakness more than offset that.
Chris Kettenmann, chief energy strategist at Macro Risk Advisors, in a note “This contra-seasonal data point is net negative for refined product and raw crude futures prices, and likely foreshadows a difficult August as refinery utilization rolls off without a material drawdown in refined products across OECD markets.”
Kettenmann pointed out that while crude production in the lower 48 states fell by 20,000 barrels last week, he remains concerned that the “window for net draws in the U.S. in the 2017 fiscal year is “too narrow for total inventories to normalize.” as US shale producers continue to “demonstrate robust growth” with WTI oil prices trading around USD 48 to USD 50 a barrel.
In a monthly report issued, the EIA said it expects U.S. crude production in 2018 to average 10 million barrels a day. That would top the previous annual record of 9.6 million barrels a day in 1970.
Gasoline prices
Mr Kloza, meanwhile, was upbeat about the outlook for gasoline demand this summer. With gasoline prices pretty much exactly where they were a year ago, and with full employment, we’ll see very strong demand in the driving season. The problem comes after Labor Day when there is no real catalyst to drive demand higher.”
Source : Market Watch