On Wednesday, data released by the U.S. EIA showed that commercial crude oil stocks, excluding strategic reserves, fell by 562,000 barrels to 499.5 million barrels as of Dec. 18, dropping to the lowest level since the end of November last year. Refined oil stocks, meanwhile, fell by 2.325 million barrels, while gasoline stocks fell by 1.125 million barrels, recording a larger decline.
EIA crude oil inventories fell and the two oil quotes moved higher at the beginning of Wednesday’s U.S. session, but then fell into a shocking trend and gave back some of the gains.
In fact, this EIA crude oil report, can not be fully interpreted as a positive report.
First of all, the EIA inventory was expected to decrease by 3.186 million barrels, while the value of this release only decreased by 562,000 barrels, the decrease in inventory was less than expected.
Second, the EIA’s report showed that the decline in U.S. crude oil inventories was mainly due to reduced supply from the West Coast, a region that is sometimes overlooked by traders due to its distribution system being isolated from the rest of the country.
Of course, generally speaking news like the EIA report generally has a short term impact on oil prices, what we need is to look at longer term fundamental indicators. This report aside, let’s talk about the demand side of crude oil.
Crude oil futures prices fell on Monday and Tuesday, partly due to restrictions on the movement of people in Europe as a result of the mutation of the New Coronavirus, which is putting pressure on energy demand. South Korea and the Philippines have moved to suspend flights from the U.K., while Japan is tightening entry rules for travelers from the U.K.
With demand for flight fuel likely to be depressed, U.S. refiners are still trying to shift aviation fuel into diesel stocks to avoid a glut. the EIA said that with the help of these moves, U.S. aviation fuel inventories fell to a six-year seasonal low last week.
On the other hand, demand for fuel is unlikely to fully recover anytime soon, despite a surge in U.S. flights ahead of the Christmas holiday.
Daily airport traffic in the U.S. reached 1 million passengers for the third straight day last weekend, but it was still less than half of what it was a year ago, and those looking to Christmas as a last hope to boost crude demand may be disappointed.
Brett Gibbs, an oil analyst with Foreign Press, said U.S. flights are still about 63 percent less than last year. With a large supply of vaccines, it will take until the second half of 2021 at the earliest to see a substantial recovery in demand. U.S. government data also showed that domestic aviation fuel demand rose to its highest level since April, but is still only half of what it was a year ago.
In addition, the spread between jet fuel and crude oil rose to $8 per barrel. While this is the highest level since the epidemic, it is well below the profit of about $21 a year ago, and refiners’ willingness to produce fuel remains low.
Looking at global markets, the economic recovery has also been uneven. While China now has 10% more domestic flights than it did a year ago, the rest of the world is lagging far behind, dragging down demand for jet fuel.
And in Europe, where economic activity is more restrictive, European refiners are shipping more middle distillates (both diesel and jet fuel) to the U.S. U.S. diesel imports have exceeded 400,000 barrels per day for two consecutive weeks, the last time that happened in February 2019.
Freight analysts at data firm Vortexa said.
“The recent increase in European cargo flows appears to be driven more by supply than by demand. While restrictions have been reimposed across Europe, oil flows have been increasing in the fourth quarter, as if overproduced, struggling oil is looking for a home.”
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