All eyes on US oil demand in the hope of a glut-drain
US OIL traders are hoping the sweltering days of July are also hot ones for demand, believing the new month is the last best opportunity this year to see the overhang of inventories finally subside.
Export opportunities to Asia and big US summer driving demand are seen as the primary drivers for a drawdown in stocks that have remained stubbornly above seasonal averages.
July is usually a big month for drawdowns. Over the last five years, inventories of crude oil have dropped by an average of 2.9 million barrels per week in July, according to the US Energy Information Administration.
But analysts warn that if inventories do not draw down in earnest, it may dash the hopes of many in the industry of seeing higher prices by the end of this year.
“Typically June/July represents the seasonal peak in refinery demand for crude,” said David Thompson, executive vice-president at Powerhouse, an energy-specialised commodities broker in Washington. “It gets tougher to use up all that crude as refinery utilization starts to ease off as we move past the peak of summer driving season.”
A record number of motorists are expected to hit the road for the Fourth of July holiday. US gasoline demand was up 0.4 percent in April from the year-ago period, the first year-overyear increase since December, according to the latest US government data.
In addition, a window has opened for US crude exports to Asia, after prices made it uneconomical to send US supplies offshore in recent months. Robust appetite from Japanese and South Korean buyers could help soak up excess supplies.
Investors came into this year optimistic, and indeed, US crude prices topped out near $55 a barrel in February in the wake of the deal struck by the Organisation of the Petroleum Exporting Countries with other key producers to reduce supply by 1.8 million barrels per day that began in January.