US oil demand remains weak but there are signs of stabilization

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The EIA released a report today that will roughly summarize what will happen between now and October. Crude inventories saw a sharp rise on the back of a large SPR release of 7 million barrels, but overall product storage continues to decline as refinery throughput remains sub-optimal. As a result, US crude inventories will continue to build on the release of the SPR, while product inventories will become extremely low.

US Crude Storage



U.S. crude storage this week saw a buildup of more than 8 million barrels. This was due to the release of 7 million barrels SPR. As some of you may recall, we released this graph of what crude oil storage will look like in the United States by the end of the year.

If the current crude balance plays out, we are likely to see crude storage increase through the end of the SPR release. The current expected end date for the release of the SPR is mid-October to the end of October, so once that’s done, we should expect the deficit to pick up again.

Until then, however, you should expect trading crude to grow.

When it comes to storing US crude with SPR, however, that’s a different story.



The chart above includes next week’s projection. As you can see, you can change your balance, but the general trend remains the same. US crude storage as a whole will continue to decline and that is because we remain in deficit.

Product storage

The real bullish indicator is hidden in the commodity stocking numbers.



Here is a table of gasoline, distillate and jet fuel. As you can see, we should start to see product inventories flatten out from now on. Refinery throughput is increasing and inventories are therefore stable. But that probably won’t happen this year. Although demand is still weak, product inventories continue to fall as refinery throughput underperforms.

So, until implied demand falls further, product inventories will continue to decline, leading to even higher refining margins than they are today.

Implied demand for oil in the United States

We are not out of the woods yet when it comes to oil demand in the United States. We have seen a slight decline in implied demand this week, but the 4 week average is starting to bottom out.



Notably, the 3 key product metrics are also starting to rise.



Although the rebound was not significant, the fact that we are at the bottom is a good sign. We suspect that consumer habits were changed by the price spike that followed the Russian-Ukrainian invasion. But after, consumers adapt and we could see demand rebound from here.

However, this is still a prediction, so we would rather just watch demand closely than assume demand will increase.


Oil markets remain in deficit. The release of the SPR by October will slow the commercial storage of crude, but the overall situation will remain the same. However, oil bulls need demand to pick up as we enter the summer demand season.

If US refineries continue to underperform, product inventories will be the first to continue falling. This will result in higher refining margins and readers should own integrated oil majors. Once the SPR release is complete, the oil cap will have been lifted and the oil market deficit will once again attract the attention of the newspapers. Until then, energy companies will continue to print money and investors should be rewarded for keeping them.

Steve R. Hansen