U.S. Oil Inventories Reach New Highs, Rebalancing Remains A Mirage

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Summary

EIA released U.S. statistics for week ending August 5, 2016.

Look for higher crude production estimates in weeks just ahead.

Crude market now in oversupply owing to imports.

Product markets continue in oversupply.

Total stocks hit new highs.

Crude Oil and Other Supply

The crude oil complex has shifted to oversupply as crude oil imports remain high. Moreover, guidance by the Energy Information Administration (EIA) for August implies higher crude production estimates in the weeks just ahead.

Crude Production

The EIA estimated that U.S. crude production dipped by 15 thousand barrels per day (mbd) last week. This follows the EIA's Short-Term Energy Outlook release yesterday in which the EIA had revised its production forecast by 80 million barrels through December 2017, as I had expected. Because of the EIA's model forecasts production for August at 8.490 million barrels per day (mmbd), we can expect the weekly production estimates to rise from this week's 8.445 mmbd.

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Other Supply

I have noted in a recent article how the "other supply" (natural gas liquids and renewables) are integral to petroleum supply. With an increase of 83,000 b/d estimated for last week, other supplies are now about 5.720 mmbd, up 4.5% over the past 4 weeks vs. the same weeks last year, and up 5.4% in YTD 2016 vs. 2015.

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Crude Imports

Net crude imports dropped 334,000 b/d last week. But over the past 4 weeks, they averaged 7.771 mmbd over the past 4 weeks, up 11.2% vs. the same weeks last year.

Crude Inputs to Refineries

Demand for crude at refineries dropped by just over 250,000 b/d last week. But the 4-week trend appears to be peaking and is now 1.2% lower over the past 4 weeks vs. the same weeks last year.

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Crude Stocks

Because of high net crude imports and lower demand at refineries, crude stocks built by 1.1 million barrels (mmb) to end at 523.6 mmb, up 70 mmb higher than a year ago.

Crude oil supplies have exceeded demand over the past 4 weeks, resulting in an early start to the seasonal stock build.

Petroleum Products

Drops in gasoline and distillate stocks provide some relief for the petroleum product markets, but the overall trend remains in oversupply.

Demand

Total petroleum demand averaged 20.701 mmbd last week and 20.777 mmbd over the past 4 weeks, up 1.9% vs. the same weeks last year. This is consistent with the growth rate of 1.9% in the YTD.

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Gasoline demand at the primary stock level has slowed 1.7 % over the past 4 weeks only about half the rate in the YTD of 3.5%. Earlier primary stock-building is probably the reason for slower demand now, as opposed to a change in vehicle miles driven, which has been robust.

Distillate fuel demand, which includes diesel fuel and heating oil, has rebounded over the past 4 weeks, up 2.4% over the past 4 weeks vs. the same weeks last year. In the YTD, demand is down 5.1% due to the warmest North American winter on record.

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Jet fuel demand was up 4.8% over the past 4 weeks vs. the same weeks in 2015. In the YTD, demand was up 3.6% vs. 2015.

Product Stocks

Total product stocks set a new record at 869 million barrels, 43 million barrels higher than last year at this time.

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The supply/demand balance is currently in oversupply by over 289,000 b/d.

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Gasoline stocks dropped by another 2.8 mmb. This reduced the stock surplus vs. last year to 19.9 mmb, which is still quite high.

Distillate stocks fell by 2.0 mmb to end at 147.8 mmb. What had been a large surplus has been largely relieved and now stands at just 3.4 mmb.

Conclusions

In total, inventories of crude oil and petroleum products stand at a record high of 1,392 million barrels, 113 million barrels higher than a year ago. This fact disproves those who state the U.S. market has been rebalancing.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.