By Sarp Ozkan
U.S. crude oil stocks declined 5.1-million barrels last week, but this decline was more than offset by huge builds in gasoline and distillates (10.6 MMbbl and 6.3 MMbbl, respectively). The huge builds in products led to a total petroleum stocks build of 7.3 MMbbl. See a graphic illustration of today’s EIA report here: PonderosaEnergyWPSR01012016
Lack of demand was the driver, as total products supplied for the past month fell by 2.5% in relation to the
same period last year. Gasoline demand was down 3.6% from the same four-week period last year and distillate demand was off 9.3%.
Even with lower crude oil prices, production increased by 17 Mb/d last week. These bearish indicators have resulted in lower WTI prices this morning, with the front-month contract trading at $34.45/bbl at the time of writing, down $1.52/bbl. The Brent front-month contract is also trading down $1.94/bbl at $34.48/bbl at the time of writing.
Continuing tensions between Saudi Arabia and Iran are adding to the concerns of a long-lasting oversupply situation, with many believing that the rift between the two OPEC members makes any chance for a quota cut unlikely. Saudi Arabia is not likely to cut output in this situation, particularly because Iran would regain market share.
Bearish Chinese demand data also has been a concern, with the slower pace of demand growth making a correction of the imbalance more prolonged. Inventories of crude oil and refined products are near or at record highs everywhere around the world, and there is concern that some regions could run out of storage space. There are definitely more bearish signs out there than bullish. There exists more pressure on prices to the downside at the moment. If demand doesn’t show up, and it appears unlikely that it will, we could see new lows.