U.S. petroleum inventories increased sharply last week as the fleet of tankers sent from Saudi Arabia at the height of the volume war started to discharge their crude while the recovery in domestic fuel use remained sluggish.
Total stocks of crude and products outside the strategic petroleum reserve climbed by almost 15 million barrels to a record 1.41 billion barrels, according to the U.S. Energy Information Administration.
Crude inventories jumped almost 8 million barrels to 534 million barrels, reversing a two-week draw, and the largest inventory build for four weeks (“Weekly petroleum status report”, EIA, May 28).
Increased crude stocks were driven by a sharp acceleration in the volume of imports clearing customs, with around half of it discharged from tankers loaded with Saudi crude at the peak of the volume war in March and April.
U.S. crude imports accelerated by 2 million barrels per day (bpd), the largest one-week increase since 1996, adding an extra 14 million barrels to petroleum supply over the seven days ending on May 22.
Crude imports from Saudi Arabia accelerated by almost 950,000 bpd, the largest one-week increase since 2013, and the fastest rate of importation from the kingdom for almost four years.
If these imports are part of a one-off wave, the legacy of the volume war between Saudi Arabia and Russia fought in late March and early April, they will not change the picture of a market rapidly rebalancing.
Domestic crude production was estimated to have fallen again last week to just 11.4 million bpd, slowing sharply from more than 13.0 million bpd at the beginning of March.
Crude inventories around the NYMEX WTI delivery point at Cushing in Oklahoma fell by more than 3 million barrels last week, the third consecutive draw, with stocks now down by a total of 12 million barrels.
Cushing storage is now 68% full, down from a peak of 83% at the start of May. Local tank farms have spare capacity to store up to an extra 25 million barrels if needed.
Spare capacity at Cushing should ease some concerns about deliverability under the NYMEX WTI futures contract and reduce the risk of extreme pricing dislocations and volatility.
But it may be some time before anxiety among futures traders about deliverability is assuaged and they are confident to trade the front-month contract again.
Stocks of refined products continued to increase, rising a further 7 million barrels to a record 880 million barrels last week.
Gasoline stocks were stable at 255 million barrels, though that was 24 million barrels above the level at the same point last year and 34 million barrels above the 10-year seasonal average.
But distillate stocks continued to surge, increasing more than 5 million barrels, and are now up by 42 million barrels since the economy went into lockdown.
Bloated distillate stocks are 39 million barrels above last year’s level and 37 million barrels above the 10-year seasonal average.
Distillates are heavily geared to the level of manufacturing and freight, ensuring stocks have surged as much of the economy remains stalled.
Stocks are also swelling as jet fuel production is curtailed and surplus jet is blended down into the diesel pool because much of the aviation sector remains shut down.
The total volume of products supplied to the domestic market averaged 16.0 million bpd last week, slightly below 16.6 million bpd the previous week, but still far above the recent low of 13.8 million in early April.
Fuel consumption is trending higher as the lockdown is relaxed but the rate of recovery has slowed. As the lockdown lifts, the impact of the ensuing recession on demand is being unmasked.