Crude inventories rose by 4.1 million barrels last week, according to data released yesterday by the US Department of Energy. This was the sixth week in-a-row that inventories rose, this time to a total of 383.9 million barrels, the highest since June and some 11 percent above the five-year average.
The increase was triggered by the continued slowdown in demand from refineries as they go through seasonal maintenance and turnaround from (summer) gasoline to (winter) distillate production.
Domestic production continues its upward trajectory with some 7.8 million barrels being produced last week. Such a level of production in the US was last witnessed in 1989.
As a result of strong production and reduced refinery demand crude inventory levels at Cushing, Oklahoma, the delivery point for WTI crude, rose by 2.2 million barrels to 35.5 million. This was the biggest jump since December following a long period earlier this year where inventories dropped due to increased pipeline infrastructure taking oil away from the production region towards the Gulf of Mexico.
The lack of demand against continued strong production has resulted in the spread between WTI crude and Brent crude staying elevated. The spread is currently at USD 13.05/barrel, the highest since early April.
The slowdown in US refinery demand witnessed at the moment is expected to be reversed within a few weeks which then should begin to lend some relative support to WTI crude, not least if some of the current supply disruptions, especially in Libya, begin to improve. Brent crude as the seaborne global benchmark would be more price sensitive to such changes in geopolitical risk relative to landlocked and non-exportable WTI crude.
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