All eyes on US oil de­mand in the hope of a glut-drain

The Star Early Edition - - BUSINESS REPORT - De­vika Kr­ishna Ku­mar

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.

Win­dow opens

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.

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