US crude oil demand under pressure

The latest US DOE and API crude and refined product inventory data points to persistent US crude oil demand weakness. The API data, released on Tuesday, showed a 3,347k build in crude oil inventories, coupled with a 1,707K gain in gasoline inventories.

With the revised estimate for US Q3:09 GDP growth data falling to 2.8% q/q, compared with the previous estimate at 3.5% q/ q, the build in crude and gasoline stockpiles indeed points US crude oil demand weakness.

The DOE data, released yesterday, showed crude oil inventories gained 1,019K barrels, while gasoline stockpiles increased 1,003K barrels last week — in line with API data. However, API distillate inventory data indicates that the slump in US industrial crude oil demand could be losing momentum.

Of note, refined product stockpiles contracted 2,360K barrels, despite a 171K increase in distillate fuel production following 2.6 percentage, point increase in refinery utilization to 82.2% (the US Gulf Coast refinery margin has jumped 40% w/w, to $5.47/bbl).

Fundamentally, these developments could see front-month WTI crude struggle to break above the $80/bbl resistance level and, until there is much more dollar weakness, we expect the $80 resistance level to hold.

Front-month WTI crude oil is becoming increasingly correlated to the US dollar again — the 5-day rolling correlation between WTI crude and the trade-weighted dollar increased from -0.15 on Tuesday to -0.58 this morning. We would therefore associate a near-term break above $80/bbl for crude oil with US dollar weakness, not economic fundamentals