Other Oils Tailwind for Summer Crude Prices

psw01 2016-4-20

Other oils inventory acts as a tailwind for crude prices during the spring and summer since few pay attention to other oil inventory and more generally the total inventory of crude and petroleum products or the total inventory of refined/petroleum products.  During the summer refineries run in a mode that produces an excess of other oils.  Other oil builds seasonally at a rate of about 2MM bbl/week effectively decreasing crude and the more monitored refined inventories of gasoline and distillates by 2MM bbl/week and hiding it in plain sight in other oil inventory.  This has the affect of making demand appear to be 2MM bbl/week higher than the underlying demand for gasoline and distillates would imply.

However, in the fall when the refineries switch to winter mode crude is cracked such that less of the other oils are left behind and more gasoline and distillates are produced.  Also it is likely that some of the other oil inventory is actually cracked to produce gasoline and distillates.  Therefore during the fall/winter starting in about September crude oil demand is effectively dropped by 4MM bbl/week as other oil inventories decrease typically at 2MM bbl/week and the false demand of putting 2MM bbl/week into inventory disappears.