By Sarp Ozkan
A grim, yet all-too-predictable, day for petroleum markets. Contrary to analyst expectations, crude oil stocks rose 4.8 MMbbl last week. This was not the only kick in the teeth, as both gasoline and distillate inventories rose 1.7 MMbbl and 2.6 MMbbl respectively.
In the end, total petroleum product inventories posted a 5.0-MMbbl rise last week, thanks to falling inventories of resid, propane, and other oils. Worse news yet, as even with the falling rig count, production posted a 12-Mb/d increase last week, showing its resilience even as WTI spot prices fell almost $3.50/bbl on average. Look at Ponderosa’s graphic of this week’s report here: PonderosaEnergyWPSR12112015
The global war for market share is more intense than ever after OPEC’s decision at the beginning of the month to keep output unchanged, and it is apparent in the import number. Imports posted a 291-Mb/d increase last week, marking a fourth straight week of increases, driving imports up to 8.3 MMb/d. Imports on average for the past four weeks are 6.3% above the same period last year.
The demand weakness is apparent, as even with low prices gasoline demand has risen only 0.5% from the same trailing four-week period last year. Distillate demand is off by a staggering 8.2%. Total product supplied was down 0.5% overall.
The low prices have crushed the distillate spread for refineries in particular, and the utilization rate reflects this; it has dropped to 91.9%. Prices have already responded, with front-month WTI at time of writing trading at $36.05/bbl, down $1.30/bbl.
The Fed decision this afternoon is likely to bring a largely anticipated interest rate hike, which will make the dollar stronger and could drive dollar-denominated commodities such as crude oil further down if indeed some players have not factored it into the price yet. Tuesday’s Congressional bill that agrees to lift the crude oil export ban as part of a spending and tax bill could be signed sooner rather than later, but the reality remains that in this environment, exports will not ease pressure on prices. Fundamentals are still showing an immense shortfall in demand and resilient supply, with the WTI-Brent spread not supporting much in the way of increased exports.
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