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Stock Movements - Nov 07

Source: OPEC_RP071110 11/15/2007, Location: Europe

US total commercial oil stocks continued their downward trend, dropping 7.4 mb in October, the third consecutive decline, to stand at 1,014 mb. However, an upward revision of US commercial stocks by DOE has resulted in a drop of 6.2 mb in September against 0.7 mb released in the previous month. More than 31 mb or around 0.35 mb/d have been drawn from stocks during the last three months. Consequently, the gap with the last five-year average has been narrowing significantly to go from a surplus of 31 mb in July to just 7 mb in October.

The drop in inventories was attributed to crude oil which fell 9 mb to stand at 312 mb, the lowest since September 2005. Since reaching an all-time high of 354 mb at the end of June, crude oil commercial stocks have lost around 43 mb and the gap with the five-year average has fallen from a surplus of 41 mb or 13% to 5 mb or 2% for the corresponding period. The draw on crude oil stocks was due to the sharp decline in imports, which fell 0.35 mb/d to move below 10 mb/d, the lowest level since last February, as a result of ongoing refining maintenance and bad weather. Additionally, the backwardation in the market, which givesmore incentives to sell than to hold existing inventories, contributed also to the continued drawdown on inventories.

In contrast to crude oil, product inventories driven by gasoline reversed the trend of the previous two months and built 1.7 mb to stand at nearly 702 mb on the back of a modest increase in imports and slower demand. Gasoline stocks rose 3.8 mb — the first build in four months — to stand at 195 mb but remained below last year and the five-year average although the deficit has narrowed. On the other hand, distillate stocks remained almost stable at around 135 mb, which corresponds to 7.5 mb below last year but 7.5 mb above the five-year average, while residual fuel oil and jet fuel stocks rose 1.2 mb and 0.5 mb respectively but remained both below the five-year average.

Despite high crude oil prices, the USA continued to replenish the Strategic Petroleum Reserve (SPR) using royalty-in-kind to compensate for crude withdrawals following hurricanes Katrina and Rita in 2005. A further 1.2 mb was added in October to hit 694 mb, the highest level since August 2005, pre-hurricanes Katrina and Rita. However, 2.4 mb had already been added to stocks in September. In addition, the Department of Energy (DOE) has plans to fill around 3.8 mb in November-December and 70,000 b/d in the first half of 2008 in line with the policy to increase SPR capacity to 1 billion barrels.

Most recent data show that US commercial oil stocks fell 0.9 mb in the week-ending 2 November to stand at 1,014 mb, which corresponds to 50 mb or 5% below last year but 16 mb or 2% above the five-year average. Crude oil was the main driver of the decline after having dropped 0.8 mb to nearly 312 mb, the lowest in more than 2 years. However, the deficit with the previous year remained around 23 mb or 7% but the surplus with the five-year average narrowed to less than 6 mb or 2%. Nevertheless, when compared in terms of forward cover, crude oil stocks represented less than 21 days of cover corresponding to 1% below the five-year average.

Similarly, gasoline stocks dropped 0.8 mb, offsetting the gain of the previous week to stand at nearly 194 mb, on the back of lower imports and production from refineries, which corresponds to 4 mb or 2% below the five-year average. In contrast to gasoline and crude oil, distillate inventories rose 0.1 mb to 135.4 mb to stand at the upper end of the five-year average, implying a surplus of nearly 10 mb or 8% with the five-year average. By product, heating oil rose 0.6 mb, narrowing the gap with the five-year average to around 10% compared with more than 30% in summer, whereas diesel oil fell a slight 0.5 mb but remainedcomfortable at more than 20% above the five-year average.

Western Europe
European (EU-15 plus Norway) total oil stocks fell a further 16.2 mb or more than 0.5 mb/d in October to stand at 1,122 mb, the lowest since April 2005. Products, particularly distillates, accounted for the bulk of the drop due to longer-than-expected maintenance and unplanned outages, which slashed around 0.36 mb/d in October compared with the previous month. The overhang from the five-year average has narrowed now to 11 mb or 1% compared with 75 mb or 7% last May, where stocks reached exceptionally high level.

Crude oil stocks continued their downward trend, dropping for the fifth consecutive time to hit 476 mb, a decline of 4.7 mb from the previous month. Despite a draw of 25 mb since June, total crude oil stocks remained 6 mb above the five-year average but the gap is narrowing. The drop in crude oil stocks is attributed mainly to the cut from North Sea production due to ongoing maintenance.

Product stocks, which fell 11 mb due to tightness in the refining system, remained within the range with 5 mb above the five-year average, but the picture is mixed when it comes to the category of products with gasoline remaining well below the lower end of the five-year average and distillates at the upper end of the range. However, distillate stocks continued their downward trend and declined 10 mb — the largest draw in almost 20 months — to stand at nearly 383 mb, the lowest level so far this year. In contrast, gasoline stocks inched up a slight 0.3 mb to around 124 mb but have remained 11 mb or 8% below the five-year average since the end of the second quarter of 2007. In addition to supply cuts from refining maintenance, exports to US amid arbitrage opportunities put further pressure on gasoline stocks. Residual fuel stocks fell 2 mb to 113 mb, down more than 7 mb or 6% from a year earlier. The drop came as a result of refining maintenance, lower imports from Russia and strong demand from Asia-Pacific, where the market remains very bullish with prices hitting record-highs. Naphtha stocks remained unchanged at 26.4 mb, representing a decline of 1.9 mb from a year ago.

Japanese commercial oil stocks fell a significant 16.4 mb in September to stand below 183 mb, the lowest in 18 months. This substantial decline sent Japanese commercial oil stocks from the upper end of the five-year range to the lower end, resulting in a deficit of 11 mb or 6% with the five-year average. It is worth noting that this year Japan’s commercial stocks have been above the five-year average with the exception of May, when they showed a deficit of 2 mb, and September when the gap reached 11 mb or 6%. Last January, the surplus stood at 26 mb or 15%.

Crude oil was the main driver behind this significant draw after falling around 14 mb to go below 100 mb for the first time since February 2006. Refining maintenance did not prevent crude oil stocks from falling due to the impact of imports which plunged around 15% to average 3.56 mb/d compared with 4.18 mb/d in August. At 97 mb, commercial crude oil inventories were 14 mb or 12% below the level of the corresponding month of the previous year and well below the lower end of the recent five-year range.

Following the same trend albeit not at a lower rate, product stocks dropped around 3 mb in September to 86 mb, reversing the upward trend of the previous four months, as a result of a decline of around 9 percentage points in the refining utilization rate due to maintenance. Gasoline stocks could not stay within the range and moved back below the lower end of the five-year range after having dropped 1.5 mb to 11.2 mb, due essentially to lower production from refineries which dropped by 10%. Distillate inventories fell 1 mb to 42.6 mb and remained within the range but slightly below the five-year average. Naphtha stocks inched up0.3 mb to almost 12 mb, representing a decline of 2 mb from a year earlier, while residual fuel fell 0.4 mb to 20.3 mb, a drop of 1.3 mb below a year ago.

According to preliminary data from PAJ, Japan’s commercial oil stocks have recovered moderately in October and have increased by 8 mb during the week-ending 3 November with crude oil contributing 6.8 mb or 85%. The build in products was attributed to fuel oil while gasoline and distillate stocks remained almost unchanged from the previous week.

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