Despite brief rebound to 74.82 after release of strong USD GDP, crude oil price dived to one month low at 72.43 amid rally in USD. The benchmark contract ended the week at 72.89, losing -2.2% on weekly basis and recorded the third consecutive weekly decline after surging to 83.95, the highest level in 15 months, in the beginning of January.
Fundamentals in the US energy market remain weak. The US Energy Department reported crude oil inventory dropped -3.89 mmb to 326.7 mmb in the week ended January 22. Cushing stocks also drew-0.69 mmb, the 5th consecutive weekly decline. We believe the main reason for the huge decline in crude stocks was the closure of the Houston Ship Channel, which serves the largest US petroleum port, shut for 2 days because of fog. It was reopened on January 21. Also, the oil-tanker spill in the Sabine Neches Waterway has led refiners to cut back production. We expect to see another draw next week as the oil spill is still impacting imports.
Both gasoline and distillate rose +1.99 mmb to 229.4 mmb and +0.36 mmb to 157.5 mmb respectively. Demand for gasoline edged slightly high on weekly basis but the level at 8.619M bpd remained below last year's level. Beware that last year's demand was very weak as it was in the midst of the worst of economic crisis. Distillate inventory built modestly compared with market exception or a draw. Imports surged +142%, on weekly basis, to 0.658M bpd, the highest level never seen since 2006. Demand dropped -2.6% to 3.725M bpd during the week. The level was still -12.5% below last year's level.
In coming few years, oil demand will be heavily relying on growth in Asian market. According to the International Energy Agency (IEA), preliminary data indicated that China's total oil demand soared +16.4% yoy in November, driven by both government spending and supply disruption due to cold weather. Demand is anticipated to have increase +7.2% to 8.5M bpd in 2009, followed by a +4.3% rise to 8.8M bpd in 2010. China takes up almost 10% of world oil demand and that's why market sentiment has deteriorated dramatically after China guided yields higher, increased required reserve ratio and limited bank lending. The market worried that the growth engine will lose momentum this year.
Other than China, India is another hot spot. Total oil demand probably rose +5.4% in 2009, followed by another +3% this year. Robust oil consumption in India was driven by gasoline demand which, in turn, was due to strong car sales.....Read the entire article.
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