Continued low imports of Saudi crude oil and firm domestic petroleum demand are likely to lead U.S. oil inventories lower, according to an S&P Global Platts preview of this week’s pending U.S. Energy Information Administration (EIA) oil stocks data.
Analysts surveyed by S&P Global Platts expect U.S. commercial oil inventories to have fallen 2.5 million barrels in the week ended July 21. U.S. crude stocks have fallen 18.59 million barrels during the past three weeks alone.
The drawdowns have helped eat away at the U.S. surplus. Stocks as of July 14 remained nearly 26% greater than the five-year average tracked by EIA data. But that is down from levels seen at the start of 2017, when stocks were more bloated, 37% greater than the five-year average for this period.
Over the same time period, long-term time spreads have narrowed sharply, with the front-12 month New York Mercantile Exchange (NYMEX) crude time spread averaging a contango* structure of $1.79 per barrel (/b) last week, compared to $3.93/b in the first week of 2017.
Stocks at Cushing, Oklahoma, the delivery point for NYMEX crude oil futures contracts, have also fallen in recent weeks, and are down 6.57 million barrels from the same time a year ago at 57.54 million barrels.
One factor helping U.S. crude stocks decline is less imports. Platts trade flow software cFlow shows that less than 20 million barrels shipped from Saudi Arabia to the U.S. in June, down from 24.4 million barrels in May and 44 million barrels in December 2016, before the OPEC/non-OPEC output cut agreement came into force. Shipments from Saudi Arabia typically take upwards of 30 days to reach the United States.
In the week ended June 14, the weekly EIA data showed Saudi crude imports fell 327,000 b/d to a seven-year low of 524,000 barrels per day (b/d).
Total imports rose 386,000 b/d to 7.996 million b/d in that week as imports from Colombia and Kuwait jumped. Net imports will likely show a reduction if imports from those countries are reduced towards their year-to-date averages.
US PETROLEUM DEMAND HEALTHY
Total petroleum product supplied — a proxy for demand — rose to 21.178 million b/d, the highest on record for the same reporting week. Total petroleum product supplied hit an all-time record in the week ended June 30 at 22.225 million b/d.
Gasoline demand in particular has been solid and is 212,000 b/d above the five-year average at 9.592 million b/d, even if slightly below the record level seen at the same time last year.
Gasoline demand has been ample enough to sop up record gasoline production this year as refiners run at breakneck utilization rates.
In the week ended June 14, U.S. refiners ran at 94% of their operable capacity, producing 10.096 million b/d of gasoline, the most ever for the same reporting week, according to the EIA data.
U.S. gasoline inventories have not grown at the same pace as crude inventories and are currently 10.18 million over the five-year average, or 4.6%.
Petroleum futures will likely find greater support if crude stocks continue to decline without simply showing up in rising refined product stocks.
Analysts surveyed by S&P Global Platts are looking for gasoline inventories to have fallen 1.25 million barrels last week, having dropped 4.445 million barrels to 231.211 million barrels in the week ended July 14.
U.S. gasoline demand cover — derived by dividing gasoline inventories by product supplied — currently stands at 23.95 days, compared with 24.77 days a year ago, indicating a tighter market.
The front-month NYMEX reformulated blend stock for oxygenate blending (RBOB) crack spread has rallied in recent weeks, averaging $18.55/b last week, up $5.11 from the same week last year.
Distillates demand cover also points to a tighter market, equating to 36.61 last week, compared to 40.59 in the same week last year. The NYMEX ultra-low sulfur diesel (ULSD) crack spread averaged $16.74 last week, up $3.98 from the same week a year ago.
Analysts expect distillates stocks to have fallen 800,000 barrels last week.
While healthy crude demand and fewer imports from Saudi Arabia will likely help drawdown U.S. commercial crude oil inventories, the unabated rise in U.S. output may provide some downward pressure on oil futures.
U.S. production rose 32,000 b/d to 9.429 million b/d and is up sharply from 8.946 million b/d at the start of the year.
Source: PlattsPrevious Next
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