ANALYSIS: Bulls delayed by unexpected build in US oil product stocks

Quantum Commodity Intelligence - Bulls may have to cool their boots until the fourth quarter to see $80/b crude, if at all, after Wednesday's US government weekly oil report showed a hefty rise in oil product inventories despite another sizeable drawdown in crude stocks.

The US Energy Information Administration report coincided with reports the United Arab Emirates and Saudi Arabia had struck a deal to set the UAE a 3.65 million bpd baseline for its production quota, boosting its production and opening the door to a fresh OPEC+ deal.

With cheaper feedstocks and an almost healthy domestic aviation market - less than 10% down on pre-pandemic levels currently - US refiners have been enjoying a summer revival compared to their downtrodden European rivals.

The fourth of July was one of the busiest days on the highways on record.

Barrels have also been flooding out of the US to meet the surge in global demand as the world climbed out of lockdowns.

But last week, the US exported more than twice as many oil products as it imported, 5.6 million bpd compared to 2.43 million bpd, and still built almost 10.4 million barrels of domestic product stocks, of which 4.7 million barrels was distillates and gasoline, in a week when refinery utilization rates dropped 0.4%.

Week-on-week crude stock draws have been grabbing headlines for months.

Since peaking on March 19 at 502.7 million barrels, US commercial crude stocks have dropped over 65 million barrels.

The strategic petroleum reserve stocks have also fallen 16.5 million barrels to make a total crude drawdown of 81.6 million barrels.

But US oil product stocks have also grown at the same time, rising 44.3 million barrels since March 19, including last week's jump.

Gasoline

Rocketing gasoline pump prices in the US, ramping up to their highest level since 2014 according to the Energy Information Administration, and sporadic shortages of the fuel in several states recently because of a lack of truck drivers, likely helped gasoline demand to tumble last week.

Supplies of finished motor gasoline, implied demand, slumped to 9.28 million bpd, down from 10 million bpd on the week to July 2 before the Independence Day boost, but also not much higher than the 9.17 million bpd over the week to June 25.

Warning signals may have flashed in BP's refining maker reference.

While the US north-west coast still saw a bumper $23.6/b margin on July 7, down just $0.2/b from the second quarter, the US mid-west reference dropped sharply from $20.5/b to $16.7/b.

The northwest Europe reference also dropped from $7.7/b in the second quarter to $6.8/b on July 7.

The trans-Atlantic crude market remains extremely tight, backwardation remains wide in the futures curves, and on Tuesday the International Energy Agency reiterated its warning of a looming supply crunch after global oil demand jumped 3.2 million bpd in June from May.

But the pathway out of the pandemic may be uneven – the UK economy expanded 0.8% in May, below expectations and less than the 2% in April despite pubs and restaurants re-opening – and the world is losing the struggle to contain Delta covid.

"Delta is now in more than 104 countries and we expect it to soon be the dominant Covid-19 strain circulating worldwide," the Director-General of the World Health Organisation said this week.

The global economy has already reached 'peak boom', found the Bank of America this month in a survey of 239 global fund managers with a collective $742 billion in assets under management.

"July economic growth expectations are now at net 47%, down from the 91% peak in Mar'21," the bank said in its report.