Oil Demand Still Weak Despite Lockdown Easing

The latest report from the Energy Information Administration provided further volatility for the crude market this week. This reflected an unexpected drop in crude inventories along with an unexpected rise in gasoline stocks.

In the week ending May 29^th, the EIA reported a 2.1 million barrel decline in US crude stores. This takes the total inventory level down to 532.3 million barrels. The result was in stark contrast to the 3 million barrel increase forecast in the weekly analyst poll conducted by Reuters ahead of the release.

Crude Inventories Fall

However, despite the unexpected drop in crude inventories, oil prices tumbled slightly in reaction to the release.

Distillate and gasoline stockpiles were higher over the week. In the distillate category, which includes diesel and heating oil, inventories were higher by 9.9 million barrels.

They rose to 174.3 million barrels, significantly higher than the 2.7 million barrel increase forecast.

Gasoline Inventories Rise

Gasoline stores were also above expectations, rising by 2.8 million barrels versus the expected 1 million barrel increase.

Looking at the gasoline products supplied figure, which a proxy to gauge fuel demand, the four-week average was 23% lower than the same period a year ago. This reflects a severe loss in demand amidst the COVID-19 lockdowns.

Elsewhere, the data showed that US net imports were a little lower over the week. They fell by 639k barrels to 6.2 million barrels per day, while refinery utilization rates nudged higher by 0.5%. Regionally, stocks at the Cushing delivery hub in Oklahoma were lower by 1.8 million barrels over the week.

Headline Data

The headline data is consistent with a pickup in demand and activity as the lockdowns begin to ease in the US. However, the rise in diesel and gasoline inventories is worrying and suggests an underlying issue with the health of the recovery.

Given the riots which have broken out over more than 140 cities across the US over the last week, it is likely that gasoline demand will have been impacted further. This is due to the traffic restrictions in place in certain areas and the disruptions to the many businesses during the protests and riots.

Oil Trading Firmly Above Broken Trend Line

Crude oil traded up to its highest level since early March this week, printing highs of 38 before softening a little in response to the EIA data.

However, with price now trading firmly above the broken bearish trend line from 2020 highs, crude looks set to further appreciate while the 33.17 level support remains in place. Any break below that level will put focus on the 28.94 region next. To the topside, 42.43 is the next key marker to watch.