17-03-2017

S&P Global Platts Analysis of U.S. Energy Information Administration (EIA) Data

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After nine straight builds, crude stocks decreased 237,000 barrels to 528.156 million barrels in the week that ended March 10, according to EIA. Analysts surveyed Monday by S&P Global Platts expected a 3.5 million barrel build for last week. The five-year average for the same reporting period is an even larger build of 4.3 million barrels.

Crude stocks typically build at this time of year with refinery utilization relatively low because of winter maintenance.

The main driver behind last week’s drawdown was U.S. crude oil imports, which fell 745,000 b/d to 7.405 million b/d.

Imports have averaged 8.2 million b/d year-to-date, exceeding the average from a year ago by 329,000 b/d, despite the Brent/West Texas Intermediate (WTI) price spread looking less favorable for imports so far in 2017.

The front-month Intercontinental Exchange (ICE) Brent/WTI futures price spread has averaged $2.23/b since the beginning of January, compared with 75 cents/b last year over the same period.

Moreover, market participants have been waiting for signs that the Organization of Petroleum Exporting Countries’ (OPEC’s) supply cut agreement, effective January 1, has begun making a dent in imports.

The transit time to reach U.S. ports from key regions like the Persian Gulf could be delaying the impact of supply cuts in terms of imports, analysts say.

Last week’s drop in imports was not necessarily evidence of OPEC supply cuts, according to Anthony Starkey, manager of energy analysis at Platts Analytics, a forecasting and analytics unit of S&P Global Platts, with other factors potentially responsible.

“Record high crude oil inventories along the US Gulf Coast and Houston Ship Channel closures due to fog have created congestion in the area,” Starkey said. “These issues may have impacted the imports of crude last week more than anything else. The fact that the Gulf Coast showed the largest drop in imports week on week may be further support for that theory.”

U.S. Gulf Coast (USGC) crude imports declined 470,000 b/d to 2.686 million b/d last week. Lower imports pulled USGC stocks down by 2.409 million barrels to 276.19 million barrels.

The USGC draw offset U.S. Atlantic Coast (USAC) stocks, which increased 2.183 million barrels last week to 20.006 million barrels.

Stocks at Cushing, Oklahoma — delivery point for the New York Mercantile Exchange (NYMEX) crude oil futures contract — rose 2.13 million barrels last week to 66.532 million barrels.

Stocks had averaged 63.9 million barrels over the previous four weeks, but a recent widening of the NYMEX WTI crude contango** has improved storage economics, which could be luring more barrels to Cushing.

NYMEX crude’s front-month/six-month spread averaged minus $1.63/b last week, out from as little as minus 82 cents/b on February 23. That price spread was trading Wednesday morning at minus $1.87/b.

CRUDE RUNS DIP

U.S. crude oil runs fell 20,000 b/d to 15.472 million b/d, pulling the refinery capacity utilization rate down 0.8 percentage points to 85.1% of capacity. Analysts were looking for an increase of 0.2 percentage points.

While the run rate stands above its recent low of 84.3% in the week ending February 17, refiners are still operating at a more subdued level than last year at this time, when the utilization rate averaged 89% of capacity.

An uptick in refinery demand will help draw stocks lower and absorb U.S. crude oil production, which continues to rise. U.S. output rose 21,000 b/d last week to 9.109 million b/d, according to EIA estimates. U.S. production now stands 681,000 b/d off its recent low in the week ending July 1, returning to levels last seen February 2016.

That recovery has further fueled doubts over OPEC’s ability to re-balance the global market through its six-month supply cut agreement, which is set to expire at the end of June.

The impact of the OPEC supply cuts has been felt in the Dubai crude market, which has strengthened relative to WTI and Brent. Dubai crude serves as a benchmark for Middle East supply heading to Asia.

But Dubai crude’s strength has also shifted supply from the Atlantic Basin to meet Asian demand, and provided an outlet for U.S. production growth.

U.S. crude oil exports rose 304,000 b/d to 746,000 b/d in January, U.S. Census Bureau data showed, and averaged 881,000 b/d in the four weeks ending February 24, according to EIA data.

U.S. crude exports have averaged 807,000 b/d over the two weeks ending March 10, EIA data shows.

USAC GASOLINE STOCKS FALL

Winter refinery maintenance has helped U.S. product stocks drawdown, with both distillate and gasoline inventories declining five of the last six reporting periods.

Gasoline stocks fell 3.055 million barrels to 246.279 million barrels in the week that ended March 10, EIA data showed. Analysts were looking for a decline of 1.9 million barrels. Gasoline stocks were 3.4 million barrels below the year-ago level, but 14.3 million barrels above the five-year average for this time of year.

Stocks on the Atlantic Coast — home to the New York Harbor-delivered NYMEX reformulated blend stock for oxygenate blending (RBOB) futures contract — fell 1.775 million barrels to 69.442 million barrels, which was 10.3% above the five-year average.

USAC refinery utilization rose 0.4 percentage point to 67.6% last week, which was just 1.6 percentage points off a two-year low reached the week ending February 24.

A relatively low level of refinery activity helped offset imports, which rebounded by 353,000 b/d to 527,000 b/d after having fallen the week prior to a record low.

Implied gasoline demand dipped 14,000 b/d to 9.254 million b/d. Over the last five weeks, demand has averaged 8.86 million b/d, which topped the five-year average by 16,000 b/d, but trailed the year-ago level by 490,000 b/d.

DISTILLATE DEMAND JUMPS

Distillates stocks fell 4.229 million barrels to 157.303 million barrels in the week that ended March 10, according to EIA data. Analysts were looking for a draw of 1.8 million barrels. After five straight weekly declines, distillate stocks have fallen 4 million barrels below the year-ago level, but still exceed the five-year average by 27 million barrels.

Implied distillates demand rose 318,000 b/d to 4.409 million b/d, the highest level since mid-December.
During the last four weeks, demand has averaged 4.15 million b/d, nearly on par with the five-year average and far above the year-ago level of 3.66 million b/d, which was relatively low because of a mild winter.

U.S. distillates exports fell 366,000 b/d to 964,000 b/d last week. Exports averaged 1.2 million b/d over the previous three weeks, likely a factor helping stocks draw on the Gulf Coast.

USGC combined stocks of low- and ultra-low sulfur diesel rose slightly, up 88,000 barrels last week to 42.359 million barrels. Combined stocks had fallen to a year-to-date low of 41.8 million barrels the week ending February 24.

* Implied demand is the amount of product that moves through the U.S. distribution system, not actual end consumption.

** Contango is the industry vernacular for the condition whereby prices for nearby delivery are lower than prices for future-month delivery.

Source: Platts 

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