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Column: U.S. oil inventories point to fragile recovery

LONDON (Reuters) - U.S. petroleum inventories are gradually becoming less bloated as crude imports remain low and refiners limit fuel production, but the slow pace of the drawdown underscores the fragility of oil market rebalancing.

Crude oil storage tanks are seen in an aerial photograph at the Cushing oil hub in Cushing, Oklahoma, U.S. April 21, 2020. REUTERS/Drone Base

Total stocks of crude oil and products fell last week, the fifth decline in six weeks, according to data from the U.S. Energy Information Administration (“Weekly petroleum status report”, EIA, Aug. 19).

With a fall of 5 million barrels last week total stocks are now down by 23 million barrels from the record 2.11 billion barrels at the start of July.

In line with previous weeks, inventory draws were again led by crude (-4 million barrels) and gasoline (-3 million) while distillate fuel oil and jet fuel stocks were unchanged and there were small builds in other products.

Crude stocks are still 4% above the five-year seasonal average, but that is an improvement on the surplus of almost 6% in the middle of July.

(Chartbook: tmsnrt.rs/32rMOKL)

Gasoline stocks are 7% above average (but down from 12% in mid-April) and distillate stocks are 24% above average (down from 29% at the start of June).

Fuel consumption remains far below normal, but by restricting crude processing, refiners are gradually working off excess stocks.

The total volume of petroleum products supplied to the domestic market has been 12% below the five-year average over the past four weeks. Refinery crude processing, meanwhile, has been 15% below average.

Despite restricted crude processing, crude stocks have continued to fall, partly owing to the unusually slow rate of imports, especially from Saudi Arabia.

Oil inventories are slowly normalising, but progress has been slower than expected at the end of the second quarter, principally because of the lingering impact of the COVID-19 pandemic on consumption.

In its latest assessment, published on Wednesday, the Joint Ministerial Monitoring Committee of OPEC+ drew attention to the oil market’s “fragility”, especially on the consumption side.

If consumption continues to recover more slowly than originally projected, OPEC+ will eventually have to revise its production schedule to cut output deeper for longer.

John Kemp is a Reuters market analyst. The views expressed are his own.

Related columns:

- Oil market sentiment softens as pandemic lingers (Reuters, Aug. 14)

- U.S. petroleum inventories show gradual rebalancing (Reuters, Aug. 13)

- U.S. crude stocks stabilise as Saudi export surge ends (Reuters, July 30)

- U.S. crude stocks bloated by aftermath of volume war (Reuters, June 11)

Editing by David Goodman

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