WASHINGTON, D.C. --- While total U.S. inventories at the end of July were in the upper half of the average range, crude and product inventories showed different trends, the Energy Department's Energy Information Administration (EIA) reported. Over the past few months, U.S. crude oil inventories have climbed to levels much above the average range, while major refined products, such as gasoline and distillate fuel have declined relative to the average range. But recently this trend has shifted. Many analysts have been expecting crude oil inputs to refineries to increase as refinery capacity that has been offline returns. As a result, crude oil inventories were expected to fall, while product inventories were thought likely to begin rebuilding from relatively low levels. With crude oil inputs over 16.2 million barrels per day a week ago, the highest weekly average since Hurricanes Katrina and Rita in 2005, crude oil inventories dropped 6.5 million barrels last week, while gasoline and distillate fuel inventories rose, the EIA said. While still below the low end of the average range for this time of year, gasoline inventories are now the closest they have been to the average range since March. Despite a dip in imports, gasoline inventories rose on record production. Distillate fuel inventories, while not as low as gasoline inventories have been, also rose slightly more than expected for this time of year, with distillate fuel production also up significantly last week. Crude oil inventories (excluding those in the Strategic Petroleum Reserve) were still well above the average range at 344.5 million barrels. If crude oil inputs remain at 16.2 million barrels per day, they would need to average about 11 million barrels per day to keep inventories from falling further, given that U.S. domestic crude oil production is around 5.2 million barrels per day. As a result, if crude oil imports average about 10.2 million barrels per day, as they have over the last four weeks, crude stocks could fall by more than 5 million barrels each week, if crude oil inputs remain at this week's level. It's important to look at oil markets from a global perspective, the EIA pointed out, since one region could experience tighter (or looser) oil markets than others. Over time, that tightness tends to spread or cycle to other regions. The latest data indicate that oil markets can also cycle between crude oil and refined products. "How long the new cycle of declining crude oil inventories and rising product inventories lasts will go a long way in determining the strength or weakness of crude oil and refined product markets in the United States," the EIA concluded.

Originally posted on Fleet Financials