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Stock Movements - Sep 07

Source: OPEC_RP070911 9/14/2007, Location: Europe

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US total commercial oil stocks continued to decline for the second consecutive month to stand at around 1,023 mb at the end of August, which corresponds to 54 mb below the level of the corresponding period of the previous year. Despite this decline of nearly 12 mb, stocks remained within the upper half of the five-year range for a surplus of 14 mb over the five-year average. The drop was driven by crude oil and gasoline. However, it is worth mentioning that commercial stocks fell by more than 16 mb over the previous two months while a year earlier they rose 34 mb.

After a drop of more than 13 mb in July, crude oil stocks fell a further 12 mb in August, the second highest decline after July’s level so far this year. The cumulative drop of 25 mb in two months brought US commercial stocks within the range of the previous five years after having been above the upper end of the range and even above the levels of 2006 since mid-June 2007. At 330 mb, US crude oil commercial stocks were almost unchanged from a year ago, but remained 30 mb above the five-year average. The strong decline in crude oil inventories is attributed to increasing refining utilization rates and lower imports, due to Hurricane Dean.

On the product side the picture is mixed, with gasoline declining for the second consecutive month and distillates increasing for the same period. Gasoline stocks fell 13.6 mb to stand at 191 mb, the lowest level in the last two months, and showed a deficit of 9 mb with the fiveyear average. Improving refining activity could not prevent gasoline stocks from dropping significantly as seasonal demand has picked up and imports went below 1 mb/d. With this decline, days of forward cover dropped to an abnormally low level of less than 20 days, although this would not have too large an impact on the market as the driving season is almost at its end.

Looking ahead, the market will be focusing more on distillates as we approach the winter season. However, distillate inventories continued their normal trend, helped by the maximization of yield by refiners, rising 5 mb to remain close to the five-year average at 132 mb at the end of August. Nevertheless, compared with the extremely high level of the previous year, distillate stocks showed a deficit of almost 13 mb, which corresponds to a deficit of around 2.5 days of forward cover from the average. By product, heating oil stocks remained 14 mb below the five-year average and diesel 15 mb above the average. Nevertheless, the comparison with the previous data may be misleading due to the change in sulphur content introduced last June. Both residual fuel oil and jet fuel dropped by 1.8 mb and 0.1 mb respectively but remained above the five-year average.

According to recent EIA data, US commercial oil stocks dropped 3.4 mb to stand at 1,019 mb in the week ending 7 September, which corresponds to 52 mb or 5% below last year’s level, but represents a surplus of 17 mb or 2% over the five-year average. The drop was driven essentially by crude oil which fell a significant 7 mb, the highest draw since last December. The decline was attributed mainly to lower imports, which fell almost 700,000 b/d in anticipation of refinery maintenance. In addition, the structure of backwardation in the futures market continued to encourage a draw on stocks. US crude oil stocks dropped around 30 mb since the end of June to stand at 323 mb, down 5 mb from a year earlier and the lowest level since mid-January. Consequently, the overhang over the five-year average narrowed to 25 mb or 8% compared with 40 mb at the end of June. Gasoline stocks fell 0.7 mb to 190 mb due to lower production and imports. Compared to the previous year and the five-year average, gasoline stocks remained low but their impact on the market has diminished with the end to the driving season. In contrast to crude oil and gasoline, distillate stocks continued their seasonal trend rising 1.8 mb to 134 mb, the same level as the five-year average but a deficit of 10 mb from the high level of last year. The build in distillate stocks came mainly from heating oil.

Western Europe
Following a cumulative draw of around 34 mb over June and July, EU-16 (Eur-15 plus Norway) commercial stocks rose a minor 0.8 mb to stand at nearly 1,144 mb at the end of August. Despite this recovery, inventories remained below the year-ago level, but showed a surplus of 30 mb over the previous five-year average. This marginal recovery was driven by crude oil, which increased 0.6 mb. At 483 mb, crude oil inventories were almost at the same level as in the corresponding month of the previous two years but displayed a surplus of 18 mb or 4% over the five-year average. The build in crude oil stocks was due to growing North Sea supplies.

Product stocks remained almost flat, although particularly residual fuel increased 1.3 mb and naphtha fell 0.9 mb. Gasoline stocks have remained stable since June at 124 mb, but were still below the lower end of the five-year average, 3 mb below last year and 11 mb below the five year average. The increase in refining runs, which boosted the utilization rates to their highest level since last January, could help gasoline stocks to recover in August as was almost the case and because of strong exports to the US. In contrast to gasoline, middle distillate stocks edged down 0.4 mb due to strong diesel demand and high exports of heating oil to South America, to go below the level of the corresponding month of 2006 for the first time this year. However, at 396 mb, distillate stocks remained comfortable with a surplus of 20 mb over the five-year average, down from 40 mb two months ago. Residual fuel surged 1.3 mb to 115 mb, the highest level since last May, while naphtha stocks fell 0.9 mb, offsetting the build of the previous month to stand at 26.4 mb, the same level as in August last year.

Japanese commercial oil stocks followed their normal seasonal trend, increasing for the third consecutive month to stand at 195 mb at the end of July, up 9.5 mb from the previous month. With this build, stocks moved in line with the five-year average in July to approach the level of the previous year and a surplus of 7 mb or 4% over the five-year average in July.

Crude oil stocks accounted for 54% of the build to stand at 115 mb, the highest level since October 2006 and the same level as a year ago. The deficit with the five-year average has narrowed to just 2% compared with 8% during May and June. The build in crude oil stocks was driven by higher imports.

Similarly, product stocks followed their normal trend, but in contrast to crude oil they continued to hover around the upper end of the five-year range. Product inventories rose 4.4 mb or 6% — the highest build so far this year — to stand at 81 mb, which corresponds to a surplus of 10 mb or 15% over the five-year average. The continuous build in product stocks is attributed to distillates, which continued to increase, whereas gasoline stocks extended their downward trend to remain below the lower end of the range. Distillate inventories rose 5 mb to 36 mb, the same level as a year ago and 2 mb higher than the five-year average. In contrast, gasoline stocks continued to decline for the sixth consecutive month to stand at 11 mb, 1 mb below the previous month and a year earlier and 2 mb or 12% below the five-year average.

Naphtha stocks dropped 0.5 mb to 12.3 mb but remained comfortable, while residual fuel rose 1.2 mb to 20.2 mb, the highest level since last January.

Preliminary data show that Japan’s commercial stocks dropped to 192 mb in the week ending 8 September. Crude oil stocks stood close to 101 mb, a decline of 14 mb from end-July, the lowest level since mid-May. The draw was attributed to lower imports and increased refinery runs. Distillate stocks rose more than 8 mb since the end of July while gasoline inventories increased slightly to 11.8 mb.

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