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U.S. Petroleum Inventories Decline, Showing Demand Is Back

Gasoline demand is at pre-pandemic levels.

Demand for crude oil and petroleum products is moving closer to healthier levels in the United States, but the numbers remain distorted by the ransomware attack on the Colonial fuels pipeline on the East Coast, analysts told Zenger News.

The U.S. Energy Information Administration reports weekly on inventory levels of commercial crude oil and refined petroleum products such as gasoline. That information is used as a rough indicator of the health of the economy, as both reflect market demand.

This week’s figures showed commercial crude oil inventories had declined by 1.7 million barrels week-on-week for the period ending May 21. That puts U.S. crude oil inventories at about 2 percent below the five-year range, revealing that demand is again on the rise.

Abhi Rajendran, the director of research at Energy Intelligence, told Zenger from New York the figures were still distorted by disruptions including May 7 Colonial ransomware attack.

East Coast markets depend on supplies from the pipeline to meet about half of the regional demand for refined petroleum products, and the outage ran down those supplies, he said.

“There will be a few more bumps as retail demand versus distributed product supply are better matched up in the coming weeks,” Rajendran said.

The total amount of petroleum products supplied over the last four-week period ending May 21 averaged 19.1 million barrels per day, the data shows. That figure is used as a proxy for consumer demand — and it is up some 18.1 percent from the same period last year.

Data from a similar week in 2019 — before the coronavirus pandemic — shows that total petroleum products supplied over the four-week period averaged 20.1 million barrels per day, suggesting demand was getting somewhat closer to pre-pandemic levels.

“This week’s report was in my view quite positive,” said Giovanni Staunovo, a commodities analyst at Swiss investment bank UBS.

“Unsurprisingly, since the release of the report oil prices have moved higher.”

Clawing back from negative territory on Wednesday, the price of West Texas Intermediate, the U.S. benchmark for the price of oil, also moved just barely into positive territory.

Resurgent demand leaves U.S. gas storage levels close to the bottom end of the five-year range. (EIA)

Staunovo added that inventories across all product lines declined.

Implied gasoline demand is back to 2019 levels, he said.

Still, the figures are distorted.

Looking ahead, next week’s federal energy report will likely show a huge spike in consumer demand from the Memorial Day holiday weekend, which is the unofficial start to the summer holiday season. With the vaccination campaign accelerating, it is likely that consumer-level demand will increase through the summer months.

“Gasoline demand is coming back in a big way,” said Phil Flynn, an energy analyst for The PRICE Futures Group in Chicago.

Declines across the board for inventory data would usually send crude oil prices sharply higher. But Flynn said the prospect that a breakthrough on multilateral nuclear deal with Iran could lead to more oil on the market, with an increased supply driving prices down.

However, Beijing’s recent crackdown on retail traders is offsetting the positive news.

Chinese financial regulators want lenders to stop selling investment products in the commodities sector to hobby investors, seeking to tamp down on some volatility in stocks in a similar fashion to the “GameStop stock” phenomenon in the U.S. earlier this year.

(Edited by Bryan Wilkes and Alex Willemyns)