A drop off in gasoline sales and refineries reluctant to buy new crude supply could keep demand weak, as oil imports hit their lowest weekly level in 15 years.
U.S. oil and gasoline stockpiles fell sharply last week, with crude oil inventories falling by 4.73 million barrels last week, the Energy Information Administration said. Analysts had forecast a build in crude stocks. Gasoline inventories fell by more than 3 million barrels, more than double analyst estimates.
While bullish news at first blush, traders and analysts say beyond the headlines, the numbers continue to point to weak U.S. demand. Gasoline demand is now down about 2 percent year-over-year.
"The car's in the garage," said analyst Tim Evans of Citi Futures. The key message Evans says you should take away from the EIA numbers is that U.S. consumer demand "stinks."
That may be part of the reason for the drop in oil imports. Crude imports fell by more than 1.17 million barrels per day (bpd) to 7.89 million bpd, falling below 8 million bpd for the first time since 1996.
Andy Lipow of Lipow Associates notes that the numbers have been volatile in recent weeks on imports. With crude futures in contango—front month contract prices not much higher than future months—refiners would rather draw down on inventories than buy new stocks. They are also in shoulder season—switching over to heating oil production. That's part of the reason refining utilization continues to drop, down another 1 percent this week.
But Lipow also notes that the mid-continent refiners who process Canadian Tar Sands oil are starting to come back online, so you could see that reflected in import numbers over the next few weeks.
Gene McGillian of Tradition Energy says the shortfall in African production may be part of the reason for lower imports, but he also believes refiners are not worried about demand, so they aren't buying.
Meantime, Evans of Citi Futures says that what we may be seeing is the market starting to shift imports to Europe, where supplies remain tight because of unrest in Libya keeping production there low. He thinks rather than bringing imports here, producers may be focusing on getting higher prices in Europe, where Brent contract futures continue to trade roughly $25 above prices for Nymex WTI crude.
"The remarkable thing is that it has taken so long for this to occur," Evans says. "It's a market that's carrying a vast premium."
He also notes that the Saudis have ratcheted back on production, so there's less import supply.
Asked if the U.S. could see some shortfalls if the economy picks up while oil continues to be diverted to Europe, Evans said the bottom line is that the consumer is holding back.
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