Deviating from the Consensus

Brent crude is presently trading at USD 80.4 per barrel, having declined from its New Year high of USD 84.6 per barrel on January 29th, marking a four-day consecutive slide of approximately 5%.

The latest US Petroleum Status Report from the EIA has revealed a nuanced scenario for oil inventories and products. While distillate (diesel) and jet inventories experienced slight declines, gasoline saw a marginal build, contributing to an overall commercial crude oil inventory increase of 1.2 million barrels.

Despite the relatively modest change in inventories, the build contrasts with consensus expectations (-0.2 million barrels) and the API forecast (-2.5 million barrels) from Tuesday. This has played a pivotal role in the recent decline in crude oil prices (more details below).

Yesterday, and during the night we also saw significant strength for the US dollar in the aftermath of the Federal Reserve statement – opting for a slightly more hawkish tone – and keeping the interest rates steady for the fourth straight meeting, while also signaling that there is no rush to ease. i.e., also being a contributing factor behind the tumbling oil prices partly as the cost of purchasing oil in other currencies instantly becomes more expensive and affects short-term demand.

However, the ongoing tensions in the Middle East remain an uncertainty for global oil prices. Currently, the situation appears to be in a wait-and-see mode, pending the US response to the killing of three US soldiers in a drone attack at a Jordanian base. Despite this, reactions in global oil prices have been muted, with fundamentals remaining a key determinant.

QuickTake on US Inventories:

A deep dive into the latest US inventory report for the week ending January 26, 2024, reveals significant changes in inventories and supply-demand dynamics. Crude oil inventories, excluding the Strategic Petroleum Reserve (SPR), increased by 1.2 million barrels (+0.3%), reaching 421.9 million barrels, which is 5% below the five-year average. Distillate (diesel) inventories followed a seasonal trend, decreasing by 2.5 million barrels (-1.9%), contributing to a 5% deficit from the five-year average.

Motor gasoline inventories rose by 1.2 million barrels (+0.5%), surpassing the five-year average by 1%, while jet fuel inventories decreased by 0.7 million barrels (-1.7%), slightly more than usual for this time of the year. Jet inventories, however, align with historical normal levels. The overall petroleum balance, including SPR, showed a decrease of 8.7 million barrels, slightly lower (-1.1%) than one year ago.

In terms of supply, domestic crude oil production reached 13 million barrels per day, reflecting a weekly increase of 0.7 million barrels. Net imports, including SPR, witnessed a substantial decline, and over the past four weeks, crude oil imports averaged about 6.2 million barrels per day, 5.9% less than the same four-week period last year. Crude oil input to refineries stood at 14.85 million barrels per day, indicating a weekly decrease. Notably, total products supplied (implied demand) over the past four weeks averaged 19.8 million barrels per day, up by 2.1% from the same period last year. Motor gasoline product supplied increased by 1.2%, while distillate (diesel) fuel product supplied decreased by 5.2% compared to the same period last year.

Ole R. Hvalbye
Analyst Commodities, SEB

Bjarne Schieldrop
Chief analyst commodities, SEB

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