LONDON(Commodity Online): Crude oil markets were buoyant through most of yesterday's trade, but closed fairly flat, with front month Brent rising for a seventh straight day, gaining 83 cents to close at $114.85/bl, while the equivalent WTI contract edged lower by 9 cents to $88.81/bl. The latest weekly EIA data adds to the recent series of somewhat more constructive indications on US oil demand. Last week was the fifth straight reading for total US demand above 19 mb/d. Total demand is now lower y/y by 114 thousand b/d (-0.6%) with gasoline lower y/y by 1% and distillates by 0.5%, the latter having improving materially after factoring in this week’s stronger gasoline and distillate figures of 9.23 mb/d and 4.09 mb/d, respectively. Overall, the latest readings add further length to the gently improving trajectory for US oil demand seen since the end of Q2.
On the inventory front, the crude and products inventory overhang above the five-year average increased by 1.9 mb, with all of the build originating from crude. Crude oil stocks increased their difference to the five-year average by 4.8 mb to 21.5 mb, as a further tranche of 4.7 mb of SPR flowed into the market over the week.
The latest tranche of SPR release brings the total to date release to 24.7 mb, with 82% of the declared 30.6 mb now in the data. Against that backdrop, crude oil inventories have built by only 4.5 mb relative to the five-year average during the time of the release. Product inventory dynamics were constructive as the inventory overhang fell by 3 mb with gasoline contributing to half of the draw. Cushing crude oil inventories have drawn down for the fifth week in a row, with the latest weekly stockpiles falling by 0.57 mb to be 2.7 mb lower y/y.
Elsewhere, today IATA released its monthly traffic results for July with passenger air traffic growth posting a strong 5.9% growth y/y. International air traffic recorded a 7.3% growth y/y along with strong load factors across the major regions. Most importantly, the growth was spread out fairly uniformly across all the key markets, with Latin American and Middle East carriers continuing to post sharp gains of 10.3% and 9.7% y/y, respectively, while European carriers followed closely with 9.3% growth y/y.
On the domestic passenger markets front, Brazil and India continue to record the highest growth, with the July numbers showing traffic increase by 17.8% and 20.6% y/y, respectively. The US domestic market, which represents close to 50% of the world’s market, grew 2.1% y/y while the Chinese domestic market (second biggest world market) slowed abruptly to a 5.1% increase in July.
This accelerates the trend of slowing domestic traffic growth in China that began in the second half of 2010, with growth over the year-to-date trimmed to the single digits now. In contrast to the passenger markets, air freight traffic for July slowed down for the third straight month and is now lower y/y by 0.4%. Asia-Pacific carriers in particular showed the weakest performance on the freight front (down 3.6% y/y) as the after-effects from the Japanese earthquake continue to weigh. In terms of other fundamental data releases, the first third-party estimates of OPEC production for August showed a further increase in total output of around 85 thousand b/d (Bloomberg: 90 thousand b/d, Reuters: 80 thousand b/d) over the month. Both the estimates peg OPEC output above 30 mb/d, which is the highest level since November 2008. Both the surveys estimate a large portion of the increase to come from Nigeria, with Reuters pegging output in August up by 170 thousand b/d m/m while Bloomberg estimates it to increase m/m by 100 thousand b/d. At an average of 2.3mb/d, this is the highest Nigerian output estimate since 2006. The 23 August Force Majeure declared on Bonny Light crude exports by Shell is expected to have a limited impact on supplies in August, but should crimp output more in September and October.
Both the surveys also estimate that Saudi Arabian output increased further in August, with production getting even closer to the 10mb/d mark. Much of the ramp up in Saudi Arabian production may be for seasonal domestic consumption and does not necessarily immediately translate into greatly increased exports. Indeed, there is some strong seasonal pattern to Saudi Arabia’s domestic oil use, with power generation direct burning of crude, and other oil liquids swinging up to some 0.6 mb/d in mid-summer.
