US crude stocks rose a touch last week. We expect bigger increases in the coming weeks given that refineries have announced plans to curb output in response to the virus-related slump in product demand.
Refinery throughput to collapse and lift crude stocks
- US crude stocks rose a touch last week. We expect bigger increases in the coming weeks given that refineries have announced plans to curb output in response to the virus-related slump in product demand.
- The EIA’s weekly US Petroleum Report, released earlier today, estimates that the amount of crude oil in commercial storage rose by 1.6m barrels last week. While slightly less than the week before, commercial stocks are still above the level recorded this time last year. (See Chart 1.)
- The increase in crude stocks was lower than the week before primarily because production fell by 100,000 bpd back to 13.0m bpd and crude inputs to refineries increased by 18,000 bpd to 15.8m bpd. However, we expect crude stocks to surge in the coming weeks as many US refineries are cutting back on throughput. Media reports suggest a cut of at least 10%. (See Chart 2.)
- Meanwhile, stocks in the US Strategic Petroleum Reserve (SPR) were unchanged. However, this will probably change next month as the US Department of Energy announced that it would purchase an initial 30m barrels of oil with deliveries in early April ‘encouraged’.
- Elsewhere, product stocks continued to drop. (See Chart 3.) But we suspect that these stocks will stop falling soon as implied product demand is starting to plummet. Gasoline consumption – which accounts for around half of US oil demand – tumbled by around 10% w/w and is now below its historic average. (See Chart 4). The spread of the coronavirus has meant that many people are now working from home instead of commuting by car (the most popular form of commuting). And the situation looks set to get much worse for US oil consumption. Our current forecast is that the US economy will contract by 40% (annualised) in Q2. (See our US Economics Update.)
Chart 1: Commercial Crude Oil Stocks (Mn. Barrels)
Chart 2: Refinery Inputs & Crude Stocks (Mn. BpD)
Chart 3: Petroleum Product Stocks (Mn. Barrels)
Chart 4: Implied Gasoline Consumption (Mn. BpD)
Sources: EIA, Capital Economics
Samuel Burman, Assistant Commodities Economist, email@example.com