High-frequency data from the United States has provided the first convincing indication of global oil market rebalancing, but it also underscores the market’s vulnerability to a COVID 19 resurgence and new lockdowns.
Total stocks of crude and refined products in the United States fell by 9 million barrels last week, the first week-on-week decline since the end of February, according to the U.S. Energy Information Administration.
Coming after stocks increased by 225 million over the previous 17 weeks, the drawdown barely made a dent in the total, but the change in direction was significant (“Weekly petroleum status report”, EIA, July 15).
Crude stocks fell by 7 million barrels and gasoline by 3 million, with distillate stocks unchanged at a time of year when they would normally be rising in the gasoline-intensive summer driving season.
Gasoline stocks ended the week 7% higher than the five-year seasonal average, but the surplus has fallen from 8% the previous week and a peak of more than 10% in early June.
Distillate stocks were still a massive 26% higher than the five-year average but the surplus had narrowed from 28% the previous week and 29% in early June.
Refiners have managed to get fuel stocks under control by increasing crude processing very slowly as the economy has emerged from lockdown.
Last week refiners left processing unchanged after increasing it progressively since the start of May, demonstrating restraint in an effort to control inventories.
Processing was still almost 2.8 million barrels per day (bpd), or 16%, below the five-year seasonal average over 2015-2019.
The total volume of petroleum products supplied to the domestic market, a proxy for consumption, was still 9% below the five-year average last week, though that was an improvement on a deficit of 11% the previous week.
Gasoline supplied was down 9% compared with the five-year average while distillates were down 2% and jet fuel was down by 30%.
Distillate and jet fuel consumption was at the strongest level since the economy went into lockdown, but both have been volatile so the data should be interpreted with extreme caution.
Gasoline consumption, however, slipped by the most for eight weeks and the recovery seems to have stalled since mid-June.
The resumption of commuting to work and personal mobility are both under threat as the coronavirus resumes its spread across large parts of the country.
If gasoline consumption is hit again, refiners will have to cut crude processing to avoid a renewed build-up in unplanned fuel inventories, which would create new headwinds for a rebalancing of the crude market.
As a result, U.S. refiners and the OPEC+ group of oil producers are both walking a tightrope, trying to raise output while remaining alert to the downside threat to consumption from further economic shutdowns.