U.S. crude oil inventories experienced a relatively modest build last week, while gasoline and distillate stocks fell by more than anticipated, according to U.S. Energy Information Administration (EIA) data and a commentary by Geoffrey Craig, oil futures editor, S&P Global Platts.
Crude oil inventories rose 867,000 barrels to 533.977 million barrels in the week ended March 24, according to EIA data. Analysts surveyed Monday by S&P Global Platts were looking for a build of 300,000 barrels.
Stocks have increased 11 of the first 12 weeks this year by 55 million barrels. Last week’s build was the second-smallest over that period.
Even though inventories pushed further into record-high territory last week, one positive sign for market bulls was refinery activity, which took a big step forward.
Crude runs rose 425,000 b/d to 16.226 million b/d, pulling refinery utilization 1.9 percentage points higher to 89.3% of capacity. Analysts were looking for an increase of 0.3 percentage points.
Refinery utilization fell to 84.3% in mid-February, marking the depth of winter maintenance, and since then ranged from 85.1% to 87.4% of capacity.
With refiners now operating at close to 90% of capacity, the start of the run-up toward the summer driving season could be underway, which will mean additional demand helping draw crude stocks lower.
On the U.S. Gulf Coast (USGC), crude oil refinery runs increased 368,000 b/d to 8.734 million b/d, raising the USGC refinery utilization rate 2.9 percentage points to 91.9% of capacity, its highest since the week ended January 13.
Higher crude exports also helped limit the size of last week’s crude build. Exports jumped 460,000 b/d to 1.01 million b/d last week. Over the last four weeks, exports have averaged 794,000 b/d.
Exports have provided an outlet for rising US crude production. EIA estimated output at 9.147 million b/d last week, the most since February 2016 and 719,000 b/d above a recent low from July 2016.
Prices have adjusted to provide US producers with an incentive to export crude and make US crudes competitive globally.
Specifically, WTI has weakened against Brent and Dubai, the benchmark for Middle East supply heading to Asia.
Compared with front-month Dubai crude, WTI for second-month delivery has been at a discount for most of 2017, which was almost unheard of last year.
And the Intercontinental Exchange (ICE) Brent/WTI spread exceeded $3/b Monday for the first time since December 2015. That spread had been below $2/b in late February, before starting to widen.
IMPORTS STAY ELEVATED
Conversely, a wider Brent/WTI spread should discourage U.S. refiners from importing barrels. That could still materialize in coming weeks, but EIA data has yet to show any slowdown.
Imports were nearly flat at 8.224 million b/d last week. Imports have averaged 8.196 million b/d year to date, nearly 300,000 b/d above the same period last year.
By country of origin, imports from Saudi Arabia fell 119,000 b/d last week to 1.164 million b/d. Saudi imports have averaged 1.274 million b/d year to date, compared with 1.05 million b/d over the second half of 2016.
Imports have remained strong this year despite a supply cut by the Organization of Petroleum Exporting Countries (OPEC) in place since January. One factor that could be luring barrels is the better returns available for storage in the U.S. versus elsewhere.
New York Mercantile Exchange (NYMEX) crude oil futures contango* has been significantly larger than ICE Brent’s since OPEC announced its supply cut deal November 30.
For example, NYMEX crude’s front-month/sixth-month spread averaged a $1.80/b contango last week. The same spread for ICE Brent averaged an 84 cents/b contango last week.
“One concerning aspect in the report was the continued strength in crude oil imports,” said Jenna Delaney, senior energy analyst at Platts Analytics, a forecasting and analytics unit of S&P Global Platts. “In the weeks to come, the market will need to see indications that the US can balance for other reasons than simply pushing more domestic barrels out into the global market.”
GASOLINE DEMAND RISES
Despite an uptick in refinery utilization, refined product stocks fell last week, as demand proved strong enough to absorb the additional supply.
U.S. gasoline stocks fell 3.747 million barrels to 239.721 million barrels, EIA data showed. Analysts were looking for a draw of 2.1 million barrels.
Gasoline stocks have declined the last six reporting periods by a total of 19.3 million barrels. Stocks now sit 5.9% above the five-year average for this time of year.
Stocks on the U.S. Atlantic Coast (USAC), home to the New York Harbor-delivered NYMEX reformulated blend stock for oxygenate blending (RBOB) contract, have also fallen the last six weeks. USAC stocks drew 2.536 million barrels last week to 65.648 million barrels.
Implied** demand rose 324,000 b/d last week to 9.524 million b/d. Demand will be taking on greater significance in coming weeks, as refiners likely ramp up production heading into summer.
Distillates stocks fell 2.483 million barrels to 152.91 million barrels, EIA data showed. Analysts were expecting a decline of 1.1 million barrels.
It was the seventh straight weekly draw, although distillate stocks still sit 17.2% above the five-year average for this time of year.
Stocks of low- and ultra-low sulfur diesel (ULSD) on the Atlantic Coast were little changed, down 104,000 barrels to 51.12 million barrels. That was 2.35 million barrels above the year prior.
DEMAND COVER SHRINKING
In terms of forward demand cover — dividing product inventories by the EIA’s product supplied data – U.S. gasoline and distillate markets seem to be tightening.
Gasoline demand cover currently stands at 25.17 days, down from 30.72 in the week ended February 5. At the same time last year, gasoline demand cover stood at 26.24 days.
Distillate demand cover reflects a similar trajectory, declining to 36.22 days in the week ended March 24, down from 43.065 days in the week ended February 19. At this time last year, distillate demand cover stood at 41.89 days.
As refined product demand cover has fallen in recent weeks, NYMEX RBOB and ULSD crack spreads have firmed.
The front-month NYMEX ULSD crack spread strengthened last week as demand cover fell, averaging $15.21/b, up from $14.65/b in the week ended March 17. The crack spread is up sharply from $11.29/b at the same time last year when demand cover was significantly higher.
The front-month NYMEX RBOB crack spread averaged $19.65/b in the week ended March 24, up from $18.20/b in the prior week. Following the release of the weekly EIA data on Wednesday, the crack spread was trading as high as $21.16/b.
* Contango is the industry vernacular for the condition whereby prices for nearby delivery are lower than prices for future-month delivery.
** Implied demand is the amount of product that moves through the U.S. distribution system, not actual end consumption.
Source: PlattsPrevious Next
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