Oil - The Good And Bad

EIA's weekly oil report today was far from bullish, but WTI closed near $76/bbl nonetheless. There are some positives and negatives to take away from this report. But let's first talk about the negatives.

One of the big misses in this report was centered on distillate, and more specifically, the drop in implied demand for distillate.

While there is some inherent volatility in the distillate data around holiday time, it is important to note that this coincides with freight activities also reaching a new cycle low. Weak distillate demand also coincides with weak manufacturing activity, which is a sign that the recession everyone is so widely predicting is starting to hit pockets of the economy.

In combination with a material jump in refinery throughput, distillate storage saw one of the largest builds this year.

Relatively speaking, we still have very low distillate storage, and the build was just slightly above the 5-year average. Nonetheless, persistently weak distillate demand will be something we need to watch carefully. If this continues for several more weeks, it is a sign that the recession in the economy is hitting distillate demand.

Now tieing this to overall US oil demand, you can quickly see that this is starting to become a tale of two halves. Gasoline and jet fuel demand remain strong. Keep in mind that following holidays, the US implied oil demand drops due to destocking and restocking of inventory, so the data is noisy.