Oil was under pressure yesterday with ICE Brent closing down 1.56% on the day. A fourth consecutive week of increases in US crude oil inventories would have put some pressure on the market. The rallies have also been enough to push WTI’s rapid temporary spreads back into contango. The EIA weekly inventory report returned yesterday after its absence last week due to a planned system update. So yesterday the market received 2 weeks of EIA data. The statement showed that US crude oil inventories rose by 3.59 million barrels over the past week to just over 439 million barrels, the highest level since August. And this is after an increase of 13.9 million barrels the week before. While this still leaves stocks below the five-year average, they are trending back toward levels more typical for this time of year. On the products side, gasoline inventories fell 1.54 million barrels last week, after falling 6.31 million barrels the previous week. Similarly, in the case of distillate fuel oil, stocks decreased by 1.42 million barrels, after a drop of 3.29 million barrels the previous week. The declines on the product side come despite a small rebound in refinery utilization rates with stronger implied demand for the week ending November 3.
Activity data from China yesterday showed that refineries processed about 15.11 million barrels/d of crude oil in October, down from 15.5 million barrels/d the previous month, but slightly more than 9% year-on-year. The accumulated activity of refineries so far this year has increased around 11.3% year-on-year. The broader increase in refinery activity this year is not a surprise given the recovery we have seen in domestic demand this year, plus refineries have received more export quotas. The figures suggest that apparent oil demand in October was 14.9 million barrels/day, up from 15.2 million barrels/day a year earlier, but still up 11% year-on-year. Taking into account recent trade data, along with this set of activity data, Chinese crude oil inventories are estimated to have increased at a rate of just under 600 Mbbls/d during October.
The US administration said it would impose oil sanctions against Iran following renewed tensions in the Middle East. While U.S. sanctions remain in place, the United States has not aggressively enforced them, allowing Iranian oil exports to grow this year. If we see stricter enforcement of these sanctions, we could possibly see a supply loss of between 500 Mbbls/d and 1 MMbbls/d, which would be enough to significantly adjust the global oil balance through 2024. Offsetting any decline from Iran could be an marginal measure. the increase in Venezuelan supply (after the United States eased sanctions) and the possible restart of Kurdish oil flows, which could return around 500 Mbbls/d to the market.