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Crude Oil Inventory Watch: Demand Falls Under Last Year's Levels

Inventories

The Department of Energy reported that in the week ending October 1st, 2010, U.S. crude oil inventories decreased by 0.4 million barrels, gasoline inventories decreased by 1.8 million barrels, distillate inventories decreased by 0.3 million barrels, and total petroleum inventories decreased by 4.7 million barrels.

For the third week in a row, the total petroleum surplus to the 5-year average decreased. The surplus now stands at 95.983 million, or 9.2%, down from 9.9% in the prior week. Three weeks ago the surplus peaked at 10.7%.

Crude oil inventories decreased counter-seasonally, but just barely. In September we saw the crude oil surplus increase significantly as storage levels stayed flat when they typically decline. Now we are seeing the surplus decrease as storage levels remain flat when they typically rise.

Product inventories are rapidly declining as refiners cut production. The gasoline surplus now stands at 8.6% above the 5-year average after peaking several weeks ago near 14.4%. Distillate inventories, while obviously still near record seasonal levels, have declined back to last year's levels.

Demand

Demand has taken a turn for the worse, which is perhaps a good indication of how well the U.S. economic recovery is performing. Demand is now officially below last year's levels, though it is still positive on a four-week rolling basis. Over the last four weeks, total petroleum demand is up 0.8%, gasoline demand is down 1.1%, and distillate demand is up by 8.8%.

Imports

Imports have turned into a bullish factor, but that is largely out of necessity. Without the decline in imports, low demand would have led inventories to surge further into record territory. Crude oil imports decreased 0.8 million barrels last week. Over the last four weeks, imports have averaged 8.8 million barrels per day, 0.4 million barrels per day higher than the year ago period.

Refinery Activity

Refinery utilization decreased to 81.9% from 83.1% in the prior week. Utilization is around the levels of last year, but below the 5-year average. Gasoline production is near the levels of a year ago, while distillate production remains higher.

Miscellaneous

U.S. crude oil production fell 0.9% week-over-week. Year-to-date oil output is up 3.9% from the year ago period.

Inventories at the NYMEX delivery point, Cushing, Oklahoma were essentially unchanged week-over-week, but are much higher than a year ago. Front month calendar spreads are at tame levels near -0.69.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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