Weekly Inventory Analysis: EIA release of 24th January

Summary of last weeks’ change in Crude Inventories figures:

API: +3.166 mb

EIA Consensus:  +2 mb

EIA actual: +2.8 mb

Note: EIA data was released at 16:00 GMT on Thursday this week due to the US holiday.

An increase of crude inventories of +2.8 mb was more than the market had expected, but with a number of positive details in the breakdown both WTI and Brent saw gains after the initial release. In particular, gasoline stocks and products supplied were both positive for the market, and this release also confirmed the first draw of stocks from Cushing since November in what was the first full week of data available since the expansion of the Seaway Pipeline.  Overall the rise in crude stocks has been primarily due to a fall in refinery input, with both US crude production and imports falling.

The Breakdown

Refinery data showed that producers continued to cut production last week, with utilization falling 4.3 percentage points to 83.6%. While this drop was large, refiners have showed similar low utilisation rates in January in previous years, in line with the build-up of stocks also normally experienced.  This fall in utilisation was reflected by a fall in net crude input of -895,000 b/d, although the data showed refinery production of gasoline continue to rise while distillate production fell.

While input declined as refiners sought to pare the build-up of product stocks, there were positive signs in the demand side data which showed both total petroleum products and in particular gasoline demand had increased for the second week running.  With the increase in gasoline demand resulting in a fall in gasoline stocks by -1.7mb, there were signs that gasoline inventories, which have risen recently to a particularly elevated level, were beginning to plateau.  Hence this news will have been taken positively by the market.

Another positive sign for US produced grades was the fact that net imports continued to fall; this week by a further 301,000 b/d. Net imports are now 771,000 b/d lower than they were at the highest point in December, although the series is perhaps the most volatile of the weekly data.

While increased product demand and decreased imports seem positive for US crude blends, the latest US crude production data also showed a decrease. While the series is also volatile, the small fall of -52,000 b/d could suggest the rate of US production increase is decelerating, which would allow infrastructure providers greater chance to catch up with production that spiked massively in 2012.

How Markets Reacted

Demand signals have been closely watched in the midst of the US economic recovery and political clashes over recent weeks. Thus despite the headline crude number coming in at a higher inventory gain than expected, the positive elements on the demand were met well and both WTI and Brent increased in the period immediately after the EIA report.

WTI, which was priced around $96.60 just before 16:00, saw an immediate fall of 0.10 in the first minute after the release and then moved up to just over $97.70 before traders took profits. The grade then fell to a similar position to its starting point, however this was due to an announcement that the Seaway Pipeline was experiencing capacity problems and thus the ability to get oil from Cushing to refiners on the gulf coast was hampered.

Brent also followed a similar pattern but managed to hold on to its gains. Just before 16:00 the grade was trading at around $112.10, with increases taking the grade up to $112.50 experiencing a short correction and going on to trading in a range. While the grade flirted with the $112.40 line several times in the afternoon, it failed to maintain any gains past what seems be a strong area of technical resistance.

For clarification see the one-minute charts, price in USD cents, below.

Next week’s release

With the Seaway Pipeline operating under restricted capacity for part of this week, the release on Wednesday will show the full effect on inventories at Cushing. Having said this, it is reported some storage in the area is now completely full and so there may be a limit to how much stocks in Cushing itself can increase, with crude simply staying in other parts of the country.

In terms of the overall report, demand side factors will continue to be the main point of interest for markets, with increasing gasoline demand a trend that investors would like to see continue in the coming weeks. With gasoline stocks now plateauing it will be interesting to see if refinery utilization picks up again in this week’s release, although with the presence of the US holiday such a result may have to wait for another week.