Weekly Oil Inventory Report - 'Imports Saved The Day'

| About: The United (USO)

Summary

Imports came in 817k b/d higher than last week.

U.S. production continues to decline.

Gasoline demand hits a new high.

Source: EnergyBasis via Twitter

Highlights

The first figure we want to discuss here is the fall in U.S. production. EIA's weekly report estimates that U.S. production fell once again from last week to 8.677 million b/d. This is meaningful, and we are certain that the market is paying particularly close attention to this. Despite oil prices' ascent back to $50, U.S. production will continue to decline, paving the way for a more balanced market.

Imports saved the day once again. Crude imports were higher by 817k b/d, or 5.719 million bbls higher on a weekly basis. Headline figures will point to a slightly lower draw compared to 2015, but one has to take into account the lower U.S. production and much higher imports.

As we've written in past oil market dailies, global supply and demand need to balance first. Once the market tightens, imports will drop. But we think imports will remain high for the remainder of 2016, and likely offset any meaningful U.S. production decline.

Gasoline demand just hit another high to an implied 9.7 million b/d over the last four weeks.

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Gasoline storage, however, increased as refineries stepped up throughput.

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One scenario we think will happen is that if oil prices continue to recover, the gasoline stock would likely remain close to current levels. Refinery throughput combined with refinery capacity glut could pressure gasoline prices. In turn, consumers won't experience the same level of increase in gasoline prices, and crude oil rising should have a much more meaningful delay until the gasoline storage glut is resolved.

Overall, this was a neutral report. The lower U.S. production was offset by the higher imports and demand for refined products remain strong. The market is still in the midst of rebalancing, and we are seeing fundamentals back the recent rise in oil prices.

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