Total stocks of crude and products, excluding oil stored in the strategic petroleum reserve, ended the year 6% above the seasonal average for the previous five years, down from a surplus of 14% at the start of July.<\/p>\n
Excess petroleum inventories were still in the 74th percentile for all weeks since the start of 1995, on the high side, but down from a surplus in 92nd percentile at the middle of the year.<\/p>\n
Total inventories, including the strategic petroleum reserve, have declined in 21 out of the last 26 weeks, by a total of 136 million barrels.<\/p>\n
Gasoline and distillate stocks have shown the fastest return to normal while commercial crude stockpiles have faced a more sluggish adjustment.<\/p>\n
By the end of December, gasoline inventories had been reduced to almost exactly in line with the five-year average, down from a surplus to the five-year average of nearly 13% in April.<\/p>\n
Distillate stocks, which include road diesel and heating oil, had been reduced to a surplus of 7%, down from 29% at mid-year, according to weekly statistics from the U.S. Energy Information Administration.<\/p>\n
Commercial crude stocks were still 10% above average, down from 19% in the middle of the year, indicating slower progress (\u201cWeekly petroleum status report\u201d, EIA, Jan. 6).<\/p>\n
Oil producers and refiners have adjusted at an exceptionally fast pace following the record shock to oil consumption caused by the first wave of the coronavirus and the associated lockdowns.<\/p>\n
On the crude side, excess inventories have been cut by lower output from domestic shale producers and a fall in imports especially from Saudi Arabia.<\/p>\n
On the products side, stocks have been cut by slower crude processing and a decision to focus on gasoline at the expense of middle distillates such as diesel and jet fuel.<\/p>\n
In final week of December, U.S. refineries processed 14% less crude than average for the previous five years, even though domestic consumption was down by just 7%.<\/p>\n
Processing restrictions are likely to persist in for the next 2-3 months which should ensure stocks of products end the first quarter below average.<\/p>\n
Lower product stocks will support higher refining margins and a sharp increase in crude processing during the second quarter.<\/p>\n
Based on futures prices, refining margins for gasoline and distillate delivered at the end of the second quarter have already risen by 40% and 60% from their post-crisis lows.<\/p>\n
The principal risk to rebalancing comes from a resurgence in coronavirus and the possibility of new lockdowns to contain it, which could force fresh cuts in margins and processing.<\/p>\n
Consumption of petroleum products has recovered strongly, ending the year 7% below the five-year average up from a deficit over 30% at one point in April.<\/p>\n
The strongest rebound has come in distillate, where consumption ended the year running above the five-year average.<\/p>\n
Distillate use is closely linked to the business cycle, especially manufacturing and freight transportation, so it has bounced back in line with the surge in manufacturing.<\/p>\n
The resurgence in diesel use is consistent with the widespread reactivation of manufacturing reported in the Institute for Supply Management\u2019s monthly surveys and the Federal Reserve\u2019s industrial production index.<\/p>\n
Gasoline consumption has also recovered, ending the year 10% below the five-year average, but improvement has stalled and even reversed since the end of third quarter, when consumption was down 5%.<\/p>\n
Gasoline consumption has been hit by the new wave of coronavirus infections and reimposition of travel restrictions and work from home orders.<\/p>\n
The worst-affected segment remains jet fuel, however, where consumption ended the year 35% below the five-year average as a result of international travel restrictions and nervousness about flying during the epidemic.<\/p>\n
But the reduction in excess distillate inventories and the strength of diesel demand is encouraging refiners to end their focus on gasoline production and target a more normal distribution of product outputs.<\/p>\n
U.S. refiners boosted their combined production of distillate and jet to 74% of their output of gasoline in the final week of the year, up from a recent low of just 55% in mid-October.<\/p>\n
If manufacturing and freight transport remain strong, while private motoring is hit by renewed coronavirus controls, refiners will shift to prioritise distillate consumption by the end of the first quarter.<\/p>\n","protected":false},"excerpt":{"rendered":"
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