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WTI Crude Analysis: Seasonality Supports US Oil Market Strength

Published 08/06/2013, 07:18 AM
Updated 03/19/2019, 04:00 AM
WTI crude oil has been very well supported over the last month and so far it has resulted in the price almost reaching USD 110 per barrel, the highest level since March 2012 while the discount to Brent Crude at one stage reached parity for the first time since 2010. We take a look at some charts so see what is going on.

Refinery demand for crude oil has been higher than normal this summer as plants have used more crude to produce fuels for summer driving demand. Most recent data showed refinery demand was running above 16 million barrels per day, the highest level since the summer of 2007.
Total US
As a result, refineries have been running at a high operating rate. Last week however it fell to 90.8 percent from 91.3 in the previous week and as the chart below shows we are close to the time of year where demand drops and thereby also the operating rate falls too.
US Refinery
All this extra demand for oil has resulted in the sharpest one-month drop in US inventories since 1982.
Crude Oil
And most importantly when we look at the price movements of WTI crude inventories at Cushing, Oklahoma which functions as the delivery hub for WTI, they have also finally begun to shrink as improved infrastructure such as a pipeline and railway have begun to move oil to coastline refineries.
Cushing Crude Oil
US imports are running at levels much below the five-year average due to increased US production at a time where oil is flowing more freely within the US. During the past month, which historically has represented a strong period for imports, we have actually witnessed a slowdown which goes to show the degree to which the dynamics in the US oil market have changed.
US Crude Oil
What happens when seasonal demand begins to fade?
As most of the above charts show we have a great deal of seasonality currently lending support to oil prices and as we move towards September some of this support should begin to fade as refinery demand drops. Whether this will lead to lower oil prices in general depends largely on whether economic data in the US, China and Europe continues to improve, combined with worries about supply disruptions, the other major focus right now. We are witnessing actual and also potential disruptions at the moment of which the biggest realised so far has been Libya. Unrest at key Libyan ports last week removed more than 1 million barrels per day before exports resumed.

The Energy Information Agency (EIA) will release its weekly inventory report tomorrow and a survey conducted by Bloomberg expects reductions in crude of 1.1 million barrels, while both products (gasoline and distillate) are also expected to drop. Most importantly however for the WTI crude traders is that the focus will once again be on Cushing and whether the recent drop in inventories continues.

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