The following is a follow-up to the article “U.S. Storage Keeps on Growing” from the April 2015 issue of Sector IQ: Energy.
After peaking at approximately 490 MMbbls (millions of barrels), US crude inventories have moved lower, as expected, with the seasonal return of refineries from spring maintenance and anticipation of higher refined product demand, specifically gasoline as people hit the roads for the summer driving season. Inventories have fallen a bit quicker than most anticipated, largely on the back of further import displacement.
Since the beginning of May, imports have been running roughly 500 Mb/d (thousands of barrels per day) lower than a year ago, and 400 Mb/d lower than imported volumes in Q1 of this year. In other words, the big drop in imports has happened quite suddenly over just the past month or so. While this is the kind of necessary import displacement we need to see in order for US inventories of crude oil to drawdown aggressively, it implies those displaced barrels are having to find a home elsewhere globally. The question then becomes, where are those barrels now destined, and how is the global market handling those volumes in what is still largely viewed as an oversupplied market?
There have been some supply disruptions of late to help alleviate the global glut, such as the closure of the Wafra field in the Saudi-Kuwait neutral zone, curtailed Canadian oil sands output due to wildfires, and lower production out of Libya. In addition, demand is rebounding versus last year, though it is difficult to distinguish how much of this is driven by strengthening economies, and how much is simply due to the much lower price environment. Regardless, inventories must continue to be closely monitored, as there is still a significant amount of damage to overcome in terms of the size of the builds experienced at the start of the year, and whether inventories will draw down aggressively enough before we enter fall refinery maintenance and/or next year’s spring maintenance seasons, and start injecting volumes all over again.
View more on this topic and more within the Sector IQ: Energy report.