Distillate Stocks at 38-Year High
August 6, 2020
The DOE inventory report called crude oil stocks down a big 7.37 million barrels putting total stocks at 518.596 million barrels compared with 438.930 million last year a difference of 79.666 million barrels. There have been many reports about the big draws to crude stocks the last few weeks offering support to prices, but I struggle with this at there is still a lot of crude. Cushing had a build of 532,000 barrels putting total stocks at Cushing at 51.953 million barrels 4.5 million more barrels than last year at this time. Adding to an already large stockpile of crude is the OPEC+ increased supplies that started August 1. The other side of the current inventory situation is that US production is down to around 11 million bpd over the last several weeks, well off the high of nearly 13 million bpd. There are a few forecasts from trading companies and the EIA that are forecasting demand overtaking supply, some as early as in a couple months and others early next year. I still struggle with this as I see 79 million more barrels of inventory than last year at this time. One of the main factors that will impact this is how will the economy perform related to COVID-19. Another lock down will certainly not be positive to cut into the crude glut. But most seem to be optimistic now and see the situation improving as a vaccine maybe getting closer all the time with some saying by the end of the year.
Gasoline stocks were up 420,000 barrels and implied demand was lower causing some to suggest the current rebound in gasoline demand is taking a pause on increased cases of the virus. Total gasoline stocks are at 247.806 million barrels 12.634 million more than last year at this time, another large overhang.
Distillates supplies were also up 1.59 million barrels putting total stock at 179.977 million barrels a 38-year high for the third week in a row and Gulf Coast distillate inventories are at all-time highs. I am not sure how we work off this inventory and think that prices may need to pullback to provide some incentive, but the market is in a carry and companies and traders will store their inventory until the market says it is needed.
Propane stocks were up 2.309 million barrels putting total stocks at 86.713 million barrels, which is 7.452 million more barrels than last year at this time. Midwest inventories were up 1.071 million barrels putting total stocks at 23.033 million barrels which is 1.515 million less than last year at this time. Gulf Coast inventories were up 1.588 million barrels putting total stocks at 51.180 million barrels which is 6.110 million more than last year at this time. Propane production is still 2.333 million barrels per day, and this creates an outlook for stocks to continue to build over the next several weeks. The potential to export a lot of propane is always there and could draw downs stocks to support prices later this year but the price has to be right for this to happen.
With the current outlook for refined fuels and propane to see some inventory builds near term there seems to be a more negative price outlook, but prices have held in a tight trading range for some time now and have not been able to break down which will likely not change anytime soon. So, at a minimum we should expect more range bound trading as the market continues to buy time looking for more clues on the economic recovery, a vaccine, energy demand, and production.