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Analysis: US crude oil stock draw fails to lead NYMEX crude higher

Energy Information Administration data Thursday showing a larger-than-expected draw in US crude oil stocks was unable to lift NYMEX crude into positive territory, with traders focused on climbing domestic production.

NYMEX July crude pared declines immediately after the release of EIA data, but fell a few cents short of flipping into the black. In the afternoon, the contract was $1.05 lower at $67.16/b.

Moreover, NYMEX July crude’s discount to ICE July Brent was above $10/b Thursday, the biggest gap between front-month contracts since March 2015.

Liquidity was thin on the July Brent contract, which expires after Thursday’s settle, but the spread for August contracts also was blowing out. The ICE Brent/WTI spread for August contracts was $11.06/b Thursday afternoon, out from $9.64/b Wednesday.

Geopolitical risks have been supportive for ICE Brent, while NYMEX crude has been weighed down by climbing US production, particularly around the Permian Basin, located in West Texas and New Mexico.

That issue has come to the fore, with the futures market increasingly aware of the pipeline constraints between the Permian Basin and Cushing, Oklahoma, and the US Gulf Coast.

US production has been steadily rising since around October 2016, when it averaged roughly 8.4 million b/d, EIA weekly estimates show. Output topped 10 million b/d earlier this year and last week stood at 10.769 million b/d.

Yet NYMEX crude was able to ride a bullish wave that began in September and culminated this month with the front-month contract above $70/b, its highest level since late 2014.


One catalyst for higher oil prices was tightening US crude inventories, as greater exports proved sufficient to offset additional supply.

US crude stocks fell 3.62 million barrels to 434.512 million barrels in the week that ended May 25, a deficit of 0.7% to the five-year average for the same period, EIA data showed Thursday.

Analysts that S&P Global Platts surveyed Tuesday expected a crude stocks decline of 600,000 barrels last week. Inventories fell by 1 million barrels on average from 2013-17.

A year ago, crude stocks were 25% above the five-year average, but this surplus began to be chipped away in September and fell to a deficit mid-March, where it has remained since.

This helped push NYMEX crude outright prices higher and diminished the discount to ICE Brent. The ICE Brent/WTI spread was $3-$4/b from February to mid-March, versus $5-$7 for most of September through December.

That spread was below $7/b as recently as May 21, but since then has ballooned on account of the reality in the physical market.

As production in the Permian grows and no new pipeline capacity is planned until the second half of 2019, supply bottlenecks have grown and increased discounts for physical grades pricing out of the region.

WTI Midland crude was assessed Wednesday at a discount of $18.80/b to WTI at the Magellan East Houston hub, the biggest discount since Platts began assessing WTI MEH in February 2015.


A wider ICE Brent/WTI spread sends a clear signal for US producers to ship more crude abroad. Greater US exports provide an outlet for supply at home, but also help fill any gaps left by other producers.

Some of those are voluntary with the OPEC-led supply cut agreement still in place, while others are involuntary, such as declines from Venezuela where the country’s oil industry is in turmoil.

US exports have averaged 2 million b/d over the last four weeks ending May 25, according to EIA data. That compares with 926,000 b/d over the same period a year ago.

Imports have averaged 7.6 million b/d over the last four weeks, versus 8.1 million b/d in 2017.


US refinery activity picked up last week, with the utilization rate rising 2.1 percentage points to 93.9% of capacity, its highest level since the week that ended January 5.

The amount of crude refiners processed rose 527,000 b/d to 17.155 million b/d. On the Gulf Coast, the epicenter of the US refinery complex, crude runs were up 370,000 b/d to 8.978 million b/d.

US distillate production rose 358,000 b/d to 5.296 million b/d, pushing distillate stocks to 114.629 million barrels, up 634,000 barrels. That marked only the second build over the last 15 weeks. The size of last week’s increase fell short of the five-year average, which shows stocks rising by 913,000 barrels. Despite the weekly build, the NYMEX ULSD crack spread against WTI was little changed Thursday afternoon at $25.20/b, down 6 cents.

US gasoline stocks increased 534,000 barrels last week to 234.431 million barrels, compared with an average draw of 1.6 million barrels from 2013-17. Analysts were looking for decline of 1.5 million barrels.

On the Atlantic Coast, home to the New York Harbor-delivered NYMEX RBOB contract, gasoline stocks fell 523,000 barrels to 64.712 million barrels. The NYMEX RBOB crack was 9 cents higher at $23.12/b Thursday afternoon.

Source: Platts

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