U.S. oil demand hits new seasonal high and there’s more to come

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The EIA released a very bullish stock report today. The most bullish figure comes from the “implied demand for oil” section of the report. And if we look at the four-week average of implied demand for oil, we are now at a new seasonal high for this period. of the year.

Source: EIA, HFI research

The demand chart is pretty amazing to watch. And one of the most important things about this total demand graph is that if you were to look at the product segment breakdown, jet fuel demand is still lagging behind the seasonal average.

Source: EIA, HFI research

As a result, the simple conclusion we can come to is that once jet fuel demand returns to the seasonal average, total oil demand will eclipse the previous high and possibly reach ~22 mb/d.

For all those people who said 2019 was going to be the peak of global oil demand, that’s a lot of eggs in your face (cough, cough, TA, cough).

Source: EIA, HFI research

The bullish report also saw total inventories decline by 9.9 million barrels excluding SPR (11.1 million barrels with SPR). As you can see, the trajectory of total oil inventories looks set to fall below 2018 levels by the end of the year.

In addition to the upward trend in the Total Oil Inventory chart, U.S. crude oil storage, including the SPR, is now below 2018 levels.

Based on our projections, this will be the lowest US crude storage level since 2015. Something to consider when looking at WTI around $73/bbl.

Finally, US crude oil production is picking up slightly, albeit at a very slow pace. Contrary to the vertical ascent we are seeing in the demand recovery, US shale oil production is still rather flat compared to the end of 2020.

Source: EIA, HFI research

As you can see, including the adjustment, US oil production has been more or less stable, pegging the current production level at around ~11.2 mb/d or down around 1.6 mb/d from the peak of 2019.

Conclusion

With U.S. oil demand already returning to seasonal averages despite the lag in jet fuel demand, all signs point to a new all-time high for oil demand once travel resumes. In the meantime, supply remains constrained as US shale oil production remains stable. As a result, US oil inventories will continue to decline at a rapid pace, causing total oil inventories to fall below 2018 levels by the end of this year.


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Felix J. Dixon