U.S. Oil Inventories Plummet On Bullish Demand

U.S. Oil Inventories Plummet On Bullish Demand

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EIA reported a very bullish oil storage report yesterday, with the total liquids stockpile down 12.6 million bbls. Total liquids stockpile with SPR is now just ~2.6 million bbls above the 2010-2014 average:

Total liquids

EIA, HFI Research

The incredible drop in total liquids came on the heel of insanely bullish US oil demand figures:

4-week average US product supplied of petroleum products (in kbbls/d)

EIA, HFI Research

Implied US oil demand on a four-week basis hit an all-time high of ~22+ million b/d. This level exceeds any previous high in demand by over ~500k b/d. What’s also incredible about this demand is that we are not even in the heart of demand season yet. This is usually from July to September.

Demand

EIA, HFI Research

Looking at the demand figures, we are seeing all-time high demand in propane/propylene, residual fuel oil, other oil, and distillate. Gasoline demand is down vs. previous years due to COVID (still) and weather, and jet fuel demand is still down due to restrictions.

With demand now at 22+ million b/d, we are now ~2 million b/d above the highest demand estimate in analyst models. This is why inventories have continued to draw, so demand estimates are going to need to be revised sharply going forward.

Putting the demand figure into context, total liquids stockpile over the implied US oil demand has now fallen below ~80 days on a coverage ratio:

Coverage

EIA, HFI Research

Since the statistic was established in 2004, we’re one of the lowest readings ever.

And as for product storage, we’re going into the draw season at one of the lowest coverage ratios ever as well at below 28 days.

Product

EIA, HFI Research

With no product storage there to cushion us from the rise in demand this summer, refining margins are going to remain elevated allowing refineries to make outsized profits for many quarters to come. This will in turn result in higher crude runs and even higher crude draws this summer.

As you can obviously tell by now, all of this remains incredibly bullish on oil market fundamentals, and the surprise in demand will only result in more upside revisions down the road. The surplus everyone is expecting in Q1 did not materialize, so now it’s time to make adjustments.

Originally Posted on: https://seekingalpha.com/article/4488042-us-oil-inventories-plummet-on-bullish-demand-product-storage-enters-draw-season-at-multi-year-lows?source=feed_tag_commodities
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