Seasonality Doesn't Prevent A Crude Build

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Includes: BNO, DBO, DNO, DTO, DWTI, OIL, OLEM, OLO, SCO, SZO, UCO, UGA, USL, USO, UWTI
by: Bespoke Investment Group

Despite the approach of summer driving season, very strong gasoline demand wasn't enough to reduce US crude oil inventories on the week. The domestic US market consumed 9.28mm barrels of gasoline per day on average over the last 52 weeks, the most since July of 2008, while the domestic demand for gasoline reported for the current week was the second highest since at least 1998 for a single week. Production of crude made a new low versus recent history at 8.79mm barrels per day. Still, crude inventories rose by 1.1 mm barrels. This is a relatively bearish result; May should see drawdowns of crude as refineries pump out summer gasoline for the height of the season. However, it's not without precedent to see a build at this time of year. 12 of the last 22 years saw a build in the 19th week of the year. Below, we chart the seasonality of crude oil inventory changes since 1994. As shown, while inventory builds have been elevated this year, they haven't moved that far off the established seasonal pattern for oil markets.

For gasoline, it's a similar story. This week saw a 1.23 million barrel draw in inventories, which is larger than average for this time of the year as shown in the chart below. Thus far in 2016, gasoline inventory draws have been performing about what you'd expect versus the seasonal trend. There are currently 24.4 days of gasoline supply in inventory versus a one-year average of 24.67 days supply. That average has been pretty steady for the last six months; while crude inventories have risen dramatically versus demand (up to 29.48 days on a 52-week average basis from around 23 days at the end of 2014), gasoline inventories have basically matched the rapid expansion in gasoline consumption from the US market and are below the 52-week average of 25.38 days supply in mid-2013.