Crude Builds, Product Draws: Unpacking US Oil Inventory Dynamics

US oil product inventories continued to fall in July, but crude stocks occasionally built up. The divergence between crude oil and refined product inventory movements is often misinterpreted by energy traders and analysts.

A build-up in crude oil inventories does not necessarily signal weak demand, as refineries can draw crude feedstock into processing at high utilisation rates. This leads to a decline in finished product stocks even when crude accumulates at the wellhead or pipeline terminal level.

The latest data from the US Energy Information Administration (EIA) shows that commercial crude stockpiles rose by 2.5 million barrels in the week ending July 31, but middle distillate inventories dropped 3.5 million barrels and now sit 12% below the five-year seasonal average.