Apathy In The Oil Market
Death by a thousand cuts, at least that's how it feels if you are watching the oil market daily. But as we noted in our Monday WCTW, the oil market is in a stalemate. Falling refinery margins arising from a combination of 1) tight crude + 2) weakening demand have resulted in refinery run-cuts.
EIA's oil storage report today confirmed the dismal refinery throughput (15.253 million b/d) and the increase into year-end is likely to be lower than expected. And amidst the low refinery throughput, US gasoline storage is now above the 5-year average, while distillate inventories remain tight.
Gasoline
Distillate
You can call these two charts a tale of two halves.
So is weak demand to be blamed here? Yes, I think so. While we did note in our report yesterday that EIA is messing up on the implied oil demand figures in the weekly charts, but the market, at the end of the day, doesn't lie. Weaker refining margins coupled with gasoline storage now sitting above the 5-year average is an indication that demand is not great. There's no other way to explain this.
But with that said, the stalemate we are seeing in the oil market will end when 1) product storage continues to move lower and 2) refining margins improve. Despite the dismal performance we are seeing in crude today, we are seeing a rebound in the 3-2-1 vanilla crack spread:
While this is a promising start, we will need to see much more improvement before we can call this a trend.