US commercial oil stocks (total crude and petroleum products excluding SPR) continued to build, adding 6 mb
or 0.21 mb/d to stand at 1,022 mb during the period 1-29 July, This level was last approached in the week
ending 2 August 2002 which stocks reached a slightly higher 1,025 mb. The gains were a result of “other oil” and
unfinished oil stocks while draws on major oil stocks such as crude oil and gasoline cancelled a huge gain in
distillates. Despite persistent stock-builds, the y-o-y surplus narrowed by 1% to stand at about 4% compared
with June figures.
Crude oil inventories continued to give up the previous months’ gains, standing close to the March level. July’s
draw of 6.9 mb or 0.25 mb/d to 318.0 mb was mainly due to the drop in US crude oil production which fell by
0.35 mb/d to 5.15 mb/d because of temporary shut-downs of crude oil facilities due to hurricanes. Import figures
and refinery runs did not justify such a draw as imports rose by 0.74 mb/d to 10.96 mb/d and refinery runs
declined by 2.29% to 95.76%. This draw further squeezed the y-o-y surplus to 6% from 7% in the previous
month, while the 7% excess over the five-year average continues to remain in place since May 2005.
Gasoline and distillate inventories showed the highest stock movement change in July, where the former lost
10.1 mb or 0.36 mb/d to stand at 205.2 mb, a level not seen since 26 November 2004, while the latter rose
massively by the same amount to stand at 127.3 mb, a level not seen since the week ending 10 September
2004. The main reason behind the draw on gasoline stocks was the drop in production which decreased by 0.56
mb/d to 8.66 mb/d due to some refinery outages because of storms. This was despite the fact that imports
remained strong at 1.01 mb/d and implied demand for gasoline was 0.13 mb/d below a month ago. The huge
draw on gasoline turned y-o-y and five-year average surpluses to a deficit of 2% from surpluses of 4% and 2%
respectively in the previous report. Forward cover of gasoline is one day below last month at 21.7 days. No
obvious justifications can be given as to why such a massive build occurred in distillates given that imports were
0.11 mb/d below last month’s level and production was 0.23 mb/d less than that observed in the previous month,
while implied demand improved slightly by 0.03 mb/d to 4.14 mb/d. The build in distillates lifted forward cover by
almost 3 days to stand at 32 days, while also improving y-o-y and five-year average surpluses to 5% each.
During the same period, the Strategic Petroleum Reserve (SPR) continued to build by 1.9 mb to 698.2 mb, or
just 2 mb shy of its maximum capacity of 700 mb. All expectations indicate that the remaining capacity will be
filled in the month of August.
In the week ending 5 August, total US commercial oil inventories showed a further build, rising by 3.43 mb to
stand at 1,024.93 mb. Crude oil and distillates were the main contributors to this build, adding 2.80 mb to
320.83 mb and 2.60 mb to 129.87 mb respectively. Gasoline continued to follow the seasonal drawdown trend,
losing a further 2.09 mb to 203.09 mb. Increasing production and imports helped crude oil inventories to regain
part of the previous losses, while accelerated distillate production continued to play a major role in high
inventories which lifted y-o-y and five-year average surpluses further to 6% and 7% respectively compared with
end-July levels.
Western Europe
After two months of nearly stagnant stock movements, total oil inventories in Eur-16 (EU plus Norway) rose
moderately by 8.9 mb or 0.29 mb/d to 1,125.0 mb in July. Most of the build came from crude oil and to a lesser
extent from distillates, while other major product inventories moved marginally in both directions. Despite this
stock-build, the y-o-y surplus declined marginally to 3% from the 4% registered in the last report.
Crude oil stocks touched an all-time high of 490.8 mb, an increase of 5.8 mb or 0.19 mb/d. Steep contango in
North Sea crude oil prices encouraged European buyers to increase stocks. Lower refinery runs, which were
affected by the longer than usual turnaround season, helped storage tanks to reach their maximum in many
refining areas. This helped the y-o-y surplus to widen to about 6%.
Middle distillates followed the pattern of crude oil, rising by 4.1 mb or 0.13 mb/d to 355.9 mb with most of this
build in heating oil as refineries were forced to stock the product while diesel was sold to meet strong seasonal
demand. Despite this build, the y-o-y surplus moved down from about 2% to less than 1%. Gasoline inventories
did not change much, moving down a slight 0.3 mb to 144.0 mb which was the highest level in five years. High
demand and relatively low production due to the long maintenance season were behind the draw which was kept
marginal due to the inflow of Russian material on the back of healthy demand and attractive gasoline prices. This
slight marginal draw resulted in a 1% decline in the y-o-y surplus to stand at about 9%. Fuel oil stocks reversed
the previous month’s draw gaining a marginal 0.7 mb to stand at 108.8 mb which was about 5% below last
year’s level. A significant part of this build is attributed to increasing Russian exports and lower local
demand.
Japan
In Japan, total oil inventories during June showed a marginal draw of 2.9 mb or 0.10 mb/d to stand at 181.8 mb.
This decline did not affect the y-o-y surplus, instead the excess widened by about 5% to about 8%. Draws came
from the product side where all major product inventories experienced marginal losses, while crude oil stocks
moved up slightly without any effect on the general picture.
Crude oil inventories rose by 0.5 mb to 121.8 mb on the back of increasing imports despite improved refinery
runs which rose by 0.25 mb/d to 3.86 mb/d. The y-o-y surplus widened to 9% or 9.8 mb. Seasonal demand and
lower production forced gasoline storage tanks to shed 1.6 mb to 12.8 mb which was 3% or 0.4 mb higher than
last year’s level. Middle distillates performed better than gasoline dropping only 0.6 mb to 27.1 mb due to lower
imports and production. Despite this marginal draw, the y-o-y surplus narrowed significantly by 5% to just 1%.
