US: Oil fundamentals remain bullish – Standard Chartered

The analysis team at Standard Chartered explains that surplus of US crude is down to a 20-month low of 102mb and they expect a deficit before year-end and also Gulf coast crude inventories are lower y/y for first time since November 2014.

Key Quotes

“Some significant records have been broken in the latest Energy Information Administration (EIA) data; we think it is the strongest single week’s data for several years. We do not expect the market – in its current ultra-bearish mood – to fully price this data in, but this should not detract from what is a bullish US fundamental picture: demand is booming and inventory surpluses are dissipating at a rapid rate. The latest week saw record-high refinery runs of crude (17.51 million barrels per day, mb/d), record-high crude oil exports (1.303mb/d) and record-high gasoline demand (9.822mb/d). While there were concerns expressed in the market earlier this year as to the robustness of US oil demand, these should have removed by the strength in recent data. Total oil demand for May was higher y/y by 1.048mb/d, with strong gains in distillate demand (468 thousand barrels per day, kb/d) and gasoline (175kb/d).”

“The oil surplus in the US is disappearing at a rapid rate. The excess of crude and products above the five-year average fell 9.82mb in the latest week to 179.43mb, the lowest since September 2015. Crude inventories fell for the eighth week, taking the surplus to a 20-month low of 102mb. Gulf Coast crude inventories (Figure 5) fell 4.35mb and are lower y/y for the first time since November 2014. The EIA’s adjustment term (which captures data differences from the tautology of output + imports - exports - runs = stock change) swung w/w from -0.398mb/d to +0.428mb/d. This helped prevent the crude draw from getting closer to 10mb this week, but we expect some further hefty draws over that next couple of months. We expect US crude inventories to fall below their five-year average before year-end, more than three months before the end of the current OPEC production curbs.”