CO:Barclays: US oil demand for May is revised down by 440000 b/d
LONDON (Commodity Online): As always the end of the month brings with itself a plethora of data releases, and this month also brought the joys of Petroleum Supply Annual which revised US oil demand for all of 2010. The y/y increase last year is now pegged at a solid 409 thousand b/d, an upward revision of 32 thousand b/d. The Petroleum Supply Monthly (PSM), however, revised US oil demand for May lower by a large 440 thousand b/d to 18.363 mb/d, the lowest level of demand since May 2009.
Together with a change in baseline demand, this constituted a y/y fall of 503 thousand b/d, following the sharp 431 thousand b/d decline in April, marking two straight months of demand decreases for the first time since October 2009. All product categories were revised lower, with the exception of jet fuel, which continues to stand out as the only part of the barrel that has remained robust despite the steep falling away in demand elsewhere.
Gasoline (revised down by 328 thousand b/d) led the way for revisions once again, with two consecutive months of above 300 thousand b/d of downward revision seen for the first time since July 2008. Diesel demand was revised lower by 150 thousand b/d, and residual fuel oil followed suit with a revision of 65 thousand b/d. As a result, the y/y change for gasoline demand flips into negative territory (now lower y/y by 3.6%), though diesel remains the only barrel to show some signs of positive growth, up y/y by 0.5%.
As a result, in the year to date, US oil demand is now lower y/y by over 1% and the weakness in Q2 stands out. If our macroeconomists' view of an improvement in US economic data is truly in the offing in Q3 and Q4, we should see the weakness in Q2 being reversed. If not, US oil demand is set for a steep decline in 2011 following the strong rebound in 2010.
The inventory data too were not constructive, with total stocks revised higher by 15.69 mb, the highest upward revision in over two years. Product inventories accounted for all of that increase, up by 16.3 mb, led by increases primarily outside the main four product categories, namely in other oils and unfinished oil and partly distillates.
Crude stocks were revised lower by 0.6 mb. The latest IATA data for June also released yesterday showed a slight softness in passenger air traffic growth, as it increased by 4.4% y/y while air freight volumes declined for the second straight month by 3% y/y. Domestic air travel volumes slowed in June and continue to trail international air traffic, which increased by a robust 5.9%. US domestic air traffic increased by 1.3% while the Japanese domestic market remains weak, down by 25% y/y although showing signs of a soft rebound.
Latin American airlines once again saw the fastest growth in their markets, as strong economic growth and expanding trade boosted both domestic and international markets for these airlines. In contrast, freight volumes remained weak, with the region with the largest market share, the Asia-Pacific, showing the sharpest drop, as disruption to trade from the Japanese earthquake continues. Moreover, freight volumes have not grown since July-August 2010. May 2010 was the post-recession re-stocking peak, compared to which the June 2011 international freight market was 6% smaller.
However, with passenger traffic growth, albeit slowing, remaining largely robust, the rebound in the Japanese economy should start to correct the anomalies in freight trade, and over the course of H2, we expect some considerable improvements. In line with that view, Japanese data for June showed that inland deliveries continued on its recovery path, totalling 3.552 mb/d, lower y/y by just 13 thousand b/d, having fallen by over 200 thousand b/d in March and April in the aftermath of the earthquake. This was also the first m/m increase (147 thousand b/d) since the earthquake.
Direct crude burn increased sharply (higher y/y by 102 thousand b/d), while gasoil demand remained in positive territory (up y/y by 11 thousand b/d), while kerosene (down by 44 thousand b/d) and LPG (down by 29 thousand b/d) were the weakest parts of the barrel and were also the primary components to see a m/m decline. With year-to-date demand running lower y/y by just 87 thousand b/d and a pick-up in economic activity post the earthquake already visible in the data (industrial production increased by 3.9% m/m), the upside surprise from higher crude usage for power generation and reconstruction activity remains firmly in place.
Inventory trends, too, were constructive, as both crude and product stocks fell again, and now stand 4.1 mb and 4.5 mb below the five-year average respectively. Refinery runs increased for the first time since the earthquake by 121 thousand b/d m/m to 3.022 mb/d. In terms of price action, macroeconomic factors, and in particular, sovereign debt fears, continue to be in the driving seat keeping prices broadly rangebound, with September Brent finishing the day 7 cents lower at $117.36/bbl and the equivalent WTI contract remains dislocated at a large $19.92, settling at $97.44/bbl, up 4 cents on the day.
