Product Draw Surprises To The Upside, US Oil Demand Continues To Be Better Than Expected

Let's address some of the bearish factors in the room first.

• The physical oil market remains weak as expressed by the various crude-grade timespreads.

• OPEC+ crude loadings are lower for the first 10 days of May, but markets remain skeptical.

• Macro and recession worries continue to trump inventory changes week-over-week.

For close followers of oil data, this week's EIA oil storage report was bullish. The crude build was entirely the result of the SPR release, while gasoline, distillate, and jet fuel declined a combined total of ~9 million bbls.

Seasonally speaking, total liquids build for this time of the year, and we are finally seeing a counter-seasonal trend happening. Not to mention that implied US oil demand is surprising to the upside and better than what the market is anticipating.

So why are oil prices lower?

Despite bullish inventory trends, the physical oil market remains weak and suggests inventory draws over the summer will not be that robust. Crude timespreads are still in backwardation, but not anywhere near the levels we saw in May last year.

So while bulls can point to improving demand data and inventory reports, the bears are pointing to a weak physical oil market and impending recession on the horizon.

Who will be proven right?

For us, the velocity of the data matters far more than perception. Similar to our oil reports last year April pointing to weakening demand in the US, we are seeing demand improving better than expected this year. In addition, the Q1 inventory builds appear to be transitory, and Q2 inventory draws are now underway. SPR release has disguised some of this, but it is apparent to those looking closely at the data.