A tsunami of oil supply helped sink the petroleum complex as refinery runs fall and demand falters. No, the sell off had nothing to do with the Commodity Futures Trading Commission (CFTC) speculation hearings going on in Washington as some of the anti free market crowd might want you to believe. It was all about an incredible surge in supply and a disturbing trend of weakness in demand as reported in yesterday's oil inventory report.
The market that was already weak when the EIA reported that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 5.1 million barrels from the previous week. That puts supply at a whopping 347.8 million barrels well above average range for this time of year. Total motor gasoline inventories fell by 2.3 million barrels last week but with the summer driving season winding down it is hard to find anyone who cares.
Where supplies are really getting out of hand is in distillates where it was reported that supply increased by 2.1 million barrels last week putting them a massive 26.5% above year ago levels. The petroleum complex sold off because of its seasonal peak the normal fears about supplying heating oil for the upcoming winter will be nonexistent.
Demand was lousy as well. The EIA reported that total petroleum products supplied over the last four-week period has averaged 18.7 million barrels per day, down by 4.1% compared to the similar period last year. Over the last four weeks, motor gasoline demand has averaged 9.2 million barrels per day, up by 0.8% from the same period last year. Distillate fuel demand has averaged about 3.3 million barrels per day over the last four weeks, down by 10.7% from the same period last year. Jet fuel demand is 13.3% lower over the last four weeks compared to the same four-week period last year. These numbers are not the type you want to see. The EIA also reported that U.S. crude oil refinery inputs averaged 14.6 million barrels per day with refineries operating at 84.6% leading to a drop in gasoline production and distillate fuel production.
Phil Flynn is senior energy analyst for PFGBest Research and a Fox Business Network contributor. He can be reached at (800) 935-6487 or pflynn@alaron.com .
