14-07-2017

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

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U.S. crude oil inventories showed a larger-than-anticipated drawdown for the latest reporting week ended July 7, while refined product inventories were mixed, according to an S&P Global Platts commentary of this week’s U.S. Energy Information Administration (EIA) oil stocks data.

  • Production at highest level since July 2015
  • Refinery crude runs remain above 17 million b/d
  • Cushing, Oklahoma, crude stocks show continued decline

In the week ended July 7, U.S. crude oil stocks fell 7.564 million barrels to 495.35 million barrels, EIA data showed. Analysts surveyed Monday by S&P Global Platts expected a draw of 2.6 million barrels.

Over the last two weeks, inventories have decreased by approximately 13.9 million barrels, bringing the surplus of stocks to the five-year average down to 103.05 million barrels.

There were also 3.15 million barrels that left the Strategic Petroleum Reserve (SPR) and entered the commercial system last week.

While crude oil futures ticked higher immediately after the release of the EIA data, within ten minutes prices were being pulled lower to around flat compared with Tuesday’s settlement.

That market reaction suggests traders were looking beyond headline numbers to details contained in the EIA report that appeared less bullish.

One area that has attracted significant market attention recently has been EIA weekly estimates of U.S. crude production, which has climbed steadily so far this year.

U.S. production rose 59,000 barrels per day (b/d) last week to 9.397 million b/d, according to EIA. Output has increased 627,000 b/d since the end of 2016, and now stands at its highest level since July 31, 2015.

Until traders see signs of U.S. production growth stalling, crude futures may have a hard time breaking higher.

Prompt-month New York Mercantile Exchange (NYMEX) crude futures traded around $45.40/b Wednesday, and has hovered in a band of roughly $40/b-$55/b since May 2016.

U.S. crude oil stocks have managed to decline in the face of rising production, mostly because of significant refinery activity that began in the spring and has continued into summer.

The amount of crude processed by refiners rose 103,000 b/d last week to 17.244 million b/d. Only twice since the week ended April 21 have crude runs been below 17 million b/d. In 2016, crude runs never topped that mark once.

The refinery utilization rate increase 0.9 percentage point to 94.5% of capacity, exceeding analysts’ expectation of a 0.7 percentage points rise.

Over the last four weeks, the utilization rate has averaged nearly 93.7% of capacity, versus around 92.3% last year over the same period.
A question already facing the market is the timing of autumn maintenance, and when refiners will start taking units offline for planned repairs along with the extent of the turnaround season.

On the Gulf Coast, epicenter of the U.S. refinery complex, the utilization rate increased 1.6 percentage points last week to 96.7%, which helped draw the region’s crude stocks 6.074 million barrels lower to 252.866 million barrels.

That was the biggest draw by region, followed by the Midwest, where crude stocks dropped 2.478 million barrels to 149.191 million barrels.

SAUDI CRUDE IMPORTS FALL

At Cushing, Oklahoma — the delivery point for the NYMEX crude futures contract — stocks fell 1.948 million barrels to 57.561 million barrels.

It was the eighth straight weekly draw at Cushing, bringing stocks there to their lowest level since November 2015.

Stocks sit 6.4 million barrels below last year, but remain at a surplus of 10.55 million barrels to the five-year average for the same time of year.

A razor-thin contango* in NYMEX crude futures has likely made it unprofitable for traders to make money by storing barrels at Cushing, which could help explain why stocks there have been dropping.

Over the last 30 days, the front-month/second-month spread has averaged a contango of 22 cents/b. That spread was trading Wednesday afternoon at a contango of just 15 cents/b.

Another factor behind last week’s draw in crude stocks was imports, which decreased 132,000 b/d to 7.61 million b/d. By country of origin, the biggest declines came from Colombia and Iraq.

Imports from Saudi Arabia were down 109,000 b/d to 851,000 b/d. That pulled the four-week moving average 45,000 b/d lower to 897,000 b/d.

That figure has been below 1 million b/d since the week ended June 16, which could be seen as validating remarks by the Saudi energy minister in late May that the flow of Saudi crude to the U.S. will likely begin ebbing.

DISTILLATE DEMAND FALLS SHARPLY

A combination of higher refinery utilization and less distillate demand led distillate stocks to build 3.131 million barrels to 153.553 million. Analysts expected an increase of 1.2 million barrels.

Over the last seven weeks, distillate stocks have increased by 7.2 million barrels. The five-year average shows a build of 4.9 million barrels over the same time period.

As such, the surplus to the five-year average has grown slightly to 21 million barrels, while compared with a year ago inventories represent a surplus of only 556,000 barrels.

On the Atlantic Coast, stocks of low- and ultra-low sulfur diesel (ULSD) rose 2.5 million barrels to 52.571 million barrels, a surplus of 16.3 million barrels to the five-year average.

The front-month NYMEX ULSD crack spread against West Texas Intermediate (WTI) strengthened from around $13.3/b June 6 to more than $17/b in early July, and has since been roughly $16/b-$17/b.

U.S. distillates implied** demand dropped 464,000 b/d last week to 3.858 million b/d. Over the last four weeks, demand has averaged 4.092 million b/d, which was 314,000 b/d above the five-year average for the same period.

GASOLINE SURPLUS SHRINKING

U.S. gasoline stocks fell 1.647 million barrels to 235.656 million barrels the week ended July 7, EIA data showed Wednesday. Analysts were looking for a build of 400,000 barrels.

Implied demand increased 81,000 b/d to 9.786 million b/d. Demand has averaged 9.711 million b/d the last four weeks. That was just 26,000 b/d less than the year prior, which was a strong period for gasoline demand.

Gasoline implied demand over the last four weeks has been 459,800 b/d above the five-year average for the same period.

Stocks sit at a surplus of 15.387 million barrels to the five-year average, which was down from nearly 24 million barrels four weeks earlier.

On the U.S. Gulf Coast (USGC), gasoline stocks drew 1.71 million barrels last week to 80.934 million barrels. USGC stocks have been little changed since mid-April, hovering around 79 million-83 million barrels.

For more information on crude oil, visit the S&P Global Platts website.

*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:  Platts 

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