The impact of hurricanes Katrina and Rita on US commercial oil inventories (total crude and petroleum products excluding SPR) was less than expected. August’s draw which had been thought to reflect part of the losses resulting from the devastating damage of the hurricanes was higher than the drawdown in September (2-30 September) of 4.7 mb or 0.17 mb/d to stand at 1,004.90 mb, which was 3.4% higher than last year’s figure and
2% above the five-year average.
In September, crude oil stocks took the lead, falling by about 10 mb followed by distillate stocks which registered a draw of about 6 mb, while gasoline compensated part of the previous month’s loss, building by about 5 mb. A further drop in refinery runs which plunged to nearly 70% from about 87% in the last report did not help crude oil inventories which tripled their losses from 3 mb in August to 9.6 mb or 0.34 mb/d to stand at 305.4 mb in September. The main cause for such massive draw was the drop of 0.55 mb/d to 3.81 mb/d in crude oil
production as well as the fall in crude oil imports which plunged to 8.12 mb/d from last month’s level of 9.53 mb/d. Despite this significant draw, the y-o-y surplus was sustained by 1% to stand at 11%, while the five-year average moved down slightly by 1% to stand at 7%. The days of forward demand rose by two to 22.2 days compared with the last period level. Forward demand was 3.9 days higher than last year’s level and 3.3 days above the five-year average.
Contrary to earlier expectations of a further draw on gasoline inventories due to the hurricanes which forced several Gulf of Mexico refineries to shut down, gasoline stocks managed to build, adding 5.4 mb or 0.19 mb/d to stand at 195.5 mb. Increasing imports which rose by 0.56 mb/d to 1.42 mb/d as well as stagnated implied demand which fell by 0.19 mb/d to 8.84 mb/d, helped gasoline stocks to stay above the 190 mb level after the previous month’s massive drop. This build helped gasoline inventories to narrow the y-o-y deficit to about 5% from 7% in the last report. The five-year average’s shortage also narrowed to 3% from 4% registered in the last
report. The days of forward cover improved due to this build, standing at 22.3 days or two days above last month’s level. Compared with last year’s level, this was one day or 6% less.
The most obvious reason to explain the distillate stock draw of 6.4 mb or 0.29 mb/d to 128.0 mb is the drop in output. Distillate production fell by 0.79 mb/d to 3.01 mb/d due to partial and complete shut-downs of some refineries after two severe hurricanes in September. The slight rise in distillate imports which gained 0.02 mb/d to 0.31 mb/d did not help inventories as implied demand rose, increasing by 0.03 mb/d to 4.03 mb/d. This upward trend of demand is estimated to show further strength while the winter season is approaching. This draw affected the y-o-y and five-year average surpluses, narrowing them to 4% and 3% from the 6% and 10% registered in the last report. Days of forward consumption lost slightly, declining by 0.8 days to stand at 32.7 days which was 3% or about 1 day above last year’s level. During the same period, the Strategic Petroleum Reserve (SPR) witnessed a lower than expected draw, declining by 7.2 mb or 0.26 mb/d to stand at 693.3 mb. The measures taken by the US administration and the IEA to alleviate the damages caused by the hurricanes are supposed to make such draw in this period more than that but most of the refineries hit by the hurricanes
were not able to handle additional volumes due to the slow recovery. Therefore SPR is projected to see a further drawdown once refineries overcome their difficulties, which in some cases could take longer than expected. In the week ending 7 October, total US commercial oil stocks displayed a further draw, declining by 6.89 mb to stand at 998.01 mb, or below the mark of one billion for the first time since June. Most of the fall came from distillate and gasoline inventories which dropped by 3.41 mb to 124.63 mb and by 2.65 mb to 192.80 mb
respectively. Crude oil stocks showed a slight build, rising by 1.02 mb to stand at 306.43 mb.
Western Europe
Total oil inventories in Eur-16 (EU plus Norway) in September continued to show builds for the third consecutive month, increasing by 2.9 mb or 0.10 mb/d to stand at 1,136.0 mb. This level was 37.1 mb or 3.4% higher than that registered a year ago. All the build came from crude oil stocks while refined product inventories either remained nearly unchanged (gasoline and fuel oil) or witnessed a moderate draw (middle distillates).
Stagnant US crude oil demand after Hurricanes Katrina and Rita forced regional European grades such as North Sea crude oils to remain in Europe which together with imports from West Africa helped crude oil inventories to again touch a record of 490 mb or an increase of 7.1 mb, which was 23.2 mb or 5% above last year’s level. This high level of crude oil inventories is expected to see a further build as long as the US market remains uneconomic for North Sea grades. Despite of sending European gasoline exports to the US market after the hurricanes, gasoline stocks remained unchanged at the previous month’s level of 139.6 mb. Higher refinery runs which rose by 0.25 mb/d to 12.54 mb/d could explain part of this lack of movement. The release of 6 mb in German strategic reserves is also thought to have remained in Europe due to tight tanker supply. The y-o-y surplus stood at 6 mb or about 5%.
Increasing demand for distillates from local European players and from the USA where fears of a shortage in distillates ahead of winter were aggravated after the hurricanes hit several US refineries, helped to push distillate inventories down by 3.4 mb or 0.11 mb/d to stand at 371.1 mb. Strikes at some French refineries could have affected distillate output as well. This level was 10.6 mb or about 3% higher than that observed a year ago.
Japan
Total oil inventories in Japan showed a further moderate build in August, rising by 4.2 mb or 0.14 mb/d to stand at 190.9 mb, a level not seen since November 2004. The main contributor to this build was middle distillates and to a lesser degree residual fuel oil, while the draw on gasoline and crude oil inventories capped the upward movement. The build improved the y-o-y surplus, pushing it up to about 13% or 21.7 mb from 8% in July.
Crude oil stocks continued to suffer from high refinery runs which rose a further 0.42 mb/d to 4.41 mb/d in August. Crude oil inventories declined by 2.7 mb or 0.09 mb/d to stand at 117.5 mb. This lifted the y-o-y surplus from 1% in July to 14% or 14.8 mb in August.
Despite seasonal demand, gasoline stocks managed to land softly thanks to higher output. They decreased by 0.8 mb or 0.03 mb/d to 12.3 mb which was 7% or 0.8 mb higher than the level observed last year. Increasing distillate production as a result of higher refinery runs ahead of high seasonal winter demand helped middle distillate inventories to build significantly by 7.5 mb or 0.24 mb/d to stand at 40.3 mb, a level not seen since December 2004.
