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US crude stockpiles shrank last week when analysts expected them to grow, handing oil bulls another reason to stay confident just as a storm threatens Gulf Coast production. The US Energy Information Administration (EIA) said on Wednesday that commercial crude inventories fell by 3.2 million barrels to 424.1 million in the week ended October 2. A Reuters poll of analysts had pointed to a rise of about 1.7 million barrels, which means the actual figure missed expectations by nearly 5 million barrels.
The surprise was partly flagged in advance. The American Petroleum Institute reported a draw of 2.09 million barrels on Tuesday, according to industry sources cited by Reuters, so traders were prepared for a decline of some kind. The government’s number came in larger, and it follows an increase of 922,000 barrels the prior week. At 424.1 million barrels, commercial stocks sit about 1 percent above the five-year average for this time of year, per oilprice.com’s reading of the EIA data, which shows supplies are not scarce on a seasonal basis even though the market feels tight.
The other headline figures were more mixed. Gasoline stocks rose by 400,000 barrels to 204.7 million, compared with an expected draw of about 1.7 million, and distillate stockpiles, which include diesel and heating oil, were little changed at 105.1 million barrels against forecasts for a 2.1 million barrel drop. Stocks at the Cushing, Oklahoma delivery hub, the pricing point for WTI, rose by 444,000 barrels. Net crude imports fell by 53,000 barrels per day. Taken together, the report shows a market where crude is being pulled out of storage while refined products are holding up better than analysts expected.
Refinery activity helps explain the crude draw. EIA data shows refinery crude runs increased by 223,000 barrels per day and utilization rose 0.2 percentage points to 92.7 percent. When refiners process more oil, they take more crude out of storage, so a strong run rate tends to produce draws even when production and imports are steady. Gasoline production averaged about 9.3 million barrels per day and distillate production climbed to 5.3 million barrels per day, according to the same coverage. In that sense, the draw is a sign of busy plants, not necessarily of collapsing supply.
Demand indicators were steady. Total products supplied, a proxy for US oil consumption, averaged 21.1 million barrels per day over the last four weeks, up 0.7 percent from a year earlier, according to oilprice.com’s summary of the EIA report. Gasoline demand averaged 8.8 million barrels per day, while distillate demand averaged 3.8 million barrels per day, down 1.6 percent year over year. Those are four-week averages, which smooth out weekly noise, and they suggest consumption is holding up at high prices without surging.
The details on diesel deserve attention. Distillate stocks are 12 percent below their five-year average, and FXEmpire reported earlier this week that East Coast distillate inventories were about 32 percent below the seasonal norm, leaving diesel supply tight ahead of winter. That matters because diesel prices influence the cost of moving goods and heating homes. A flat distillate reading is better than the steep draw analysts expected, but a market that starts from a low base has little cushion if a hurricane disrupts refining.
That is the risk now in focus. Tropical Storm Isaias is heading toward the US Gulf Coast, and Shell and Chevron have started shutting in offshore platforms ahead of it, according to oilprice.com. Reuters noted that the offshore areas in the storm’s path produce about 15 percent of US crude and 5 percent of natural gas, and that Gulf Coast refineries account for roughly half of the country’s 18.2 million barrel per day refining capacity. A hurricane could therefore reduce crude output and also interrupt the refineries that turn crude into fuel. The inventory report covers the week before the storm, so it does not capture any of these effects, which will begin to show up in the next few reports.
Policy moves add another layer. API data indicates that another 800,000 barrels left the US Strategic Petroleum Reserve in the week, bringing its total to about 283 million barrels, which is 431 million barrels short of capacity. A market-tracking site reports that the G7 agreed on October 2, through the International Energy Agency, to release 100 million barrels of diesel and crude from strategic reserves, and analysts at Investinglive noted that the IEA statement and likely diesel releases weighed on crude and diesel prices at the time of the EIA release. I could not confirm the details of the G7 plan from a primary government source, so readers should treat the figure as reported.
Prices reflected the push and pull. West Texas Intermediate traded near $90 on Wednesday and rose further on Thursday toward $91 as the storm advanced, while Brent hovered between $100 and $104. A bigger-than-expected crude draw generally supports prices because it suggests tighter supplies, though changes in imports, exports and refinery activity can drive inventory swings without signaling a lasting shift in demand, as Investinglive pointed out. The unusual feature this week is that the draw arrived alongside a flat diesel reading and a gasoline build, which dampened the bullish message.
For consumers, the report carries a simple message. Fuel is not running short in the United States, but the system is stretched and sensitive to disruptions. If the storm interrupts production and refining for more than a few days, wholesale prices for gasoline and diesel could climb, and pump prices tend to follow with a lag. For international readers, including those in oil-exporting countries such as Nigeria, American inventories matter because they influence benchmark prices, and higher prices raise potential export revenue even as they raise the cost of imported refined fuel.
What to watch next is the following week’s report, due after the storm passes. Analysts will want to see how refinery utilization responds, whether crude production drops because of shut-ins, and how fuel inventories change if plants close. Investors will also watch the Strategic Petroleum Reserve, since continued drawdowns signal that officials see a need to support supply. The EIA publishes the full tables each Wednesday in its Weekly Petroleum Status Report, and Reuters’ summary of this week’s figures is carried by the BOE Report.
Readers who follow global energy, markets and technology can find more coverage at BusinessTech Nigeria. The bottom line from Wednesday’s data is that US crude stocks fell when they were supposed to rise, and with a storm approaching the Gulf, the next report may matter even more.
