Weekly Inventory Analysis: EIA release of 30th January

Summary of last weeks’ change in Crude Inventories figures:

API: +4.2 mb

EIA Consensus:  +2.5 mb

EIA actual: +5.9 mb

Brent and Crude traded choppily last Wednesday on the back of an EIA release that saw crude inventories rise +3.4 mb above the expected number. Despite positive signs from refiners and consumers, the continuing rises in inventories in the US and in particular Cushing show that supply factors may be beginning to dominate once more.

The Breakdown

After the previous release showed a massive drop in refinery utilisation, it was a relief to see the gauge increase 1.4%ppts to 85% this week, with refinery inputs also increasing by 275,000 b/d after last week’s large fall. While the long term average utilisation rate is around 88.7%, it is normal to see lower rates at this time of the year.

Further positive signs were seen from a second consecutive fall in gasoline stocks as well as a fall in distillate stocks, which when combined with further increases in the demand figures for these two types of product points to signs that refinery utilisation and thus crude demand could continue to increase in next week’s release. 

Despite these positive signs, negative indications came from a rise in net imports and the fact that day’s inventory cover seemed to be ticking up at a faster rate than normal for this time of year: Net imports increased by 338,000 b/d, more than making up for the fall seen last week, while day’s supply, which measures how many days of crude demand current inventories could cover for, reached 25 days last week. This measure is typically cyclical as the chart below shows; however the black line indicates cover appears to be increasing sooner than usual, which demonstrates the extent to which supply is overwhelming demand at the moment.

Finally, despite these signs of overwhelming supply there was some consolation from that fact that US production remained roughly flat for the second week running, with production increasing just 4,000 b/d.

How Markets Reacted

Wednesday was a significant news day for crude, with both US GDP and a Federal Reserve meeting scheduled as well as continuing concerns of geopolitical events in the Middle East rearing their head. Under this backdrop, trading was choppy for the whole day but news outlets suggest an underlying negative sentiment from the inventories release despite the fact that prices for both grades increased.

WTI was priced around $98 at 15:30 on Wednesday, and as the graph below shows the bulls and bears fought for control of the market as the grade rose, slipped and then rose again so that by 16:00 it had actually increased to around $98.1 despite the negative headline number.

Brent saw similar action as the chart below shows, increasing by around $0.3 from around $113.3, before falling back down and then rising again. While Brent then seemed to increase slightly, this could be put down to geopolitical issues as news was released that French forces had hit a weapons convoy in Syria at a similar time on Wednesday (see Weekly Oil Summary).

This week’s release

The fact that this summary is a little late allows me to include reference to news late last week that it has been confirmed that the Seaway Pipeline has not been as effective as suggested at alleviating the WTI glut seen in Cushing. While some extra capacity on the pipeline has been used, we are now in the situation where one of the exit points at Jones Creek, TX has reached its storage capacity (see Weekly Oil Summary), and the pipeline has thus not been able to operate at the increased throughput of 400,000 bd. While WTI decreased 0.5% on this news, further negative news regarding inventories this week could see a much stronger reaction from the WTI price. While demand signs will continue to be a key focus for Brent, we could see a further disconnection between the two grades if inventories at Cushing are indeed seen to be increasing further, particular if US crude production begins another upward trend.