29-06-2018

Analysis: US crude exports, refinery runs set records

US crude inventories fell sharply last week as exports and refinery runs both reached all-time highs, according to Energy Information Administration data released Wednesday.

* Biggest weekly draw since September 2016

* Cushing stocks fall below 30 million barrels

* Gasoline, distillates see builds

Inventories dropped 9.891 million barrels to 416.636 million barrels for the week ended June 22, representing the biggest week-on-week draw since September 2016, EIA data showed.

Analysts surveyed Monday by S&P Global Platts were looking for a decline of 2.3 million barrels.

Crude exports rose 626,000 b/d last week to 3 million b/d, breaking the previous record of 2.566 million b/d set the week ending May 11.

The amount of crude processed by refineries increased 115,000 b/d to 17.816 million b/d, the highest level on record, according to EIA data going back to 1982.

Crude stocks now sit 3.57% below the five-year average for the same period; that figure equaled a 26.73% surplus a year ago.

The EIA weekly data helped lift oil futures. As of Wednesday afternoon, NYMEX August crude was $2.24 higher at $72.77/b. ICE August Brent was $1.69 higher at $78/b.

NYMEX crude’s strength relative to ICE Brent on Wednesday extended a trend that began last week. As a result, the gap between the two crude benchmarks has narrowed sharply.

The ICE Brent/WTI spread has been less than $6/b since Tuesday, in from more than $10/b early last week.

A trigger behind the narrowing spread has been the shutdown of Canada’s Syncrude following a power outage last week. Syncrude production could be lost through July or even later.

The subsequent market reaction suggests some concern over supply around the NYMEX crude delivery point in Cushing, Oklahoma.

Prompt NYMEX crude has outperformed the rest of the oil complex, which explains the narrower Brent/WTI spread along with the steeper backwardation.

NYMEX crude’s front-month/second-month spread was $1.54/b Wednesday afternoon, the steepest backwardation since August 2014 and out from less than 20 cents/b early last week.

A steeper backwardation can reflect strong demand by traders who need to secure barrels for prompt delivery.

It can also help lure speculative length into the futures market because backwardation translates into a positive yield when traders role their positions from the front- to second-month contract.

The Syncrude supply disruption might have also played a role in last week’s draw at Cushing, where stocks fell 2.713 million barrels to 29.893 million barrels.

After six straight draws, the amount of oil in storage at Cushing has dropped to its lowest level in three months when inventories were under 30 million barrels for a four-week stretch.

If Cushing stocks can draw to less than 28.18 million barrels, that will put inventories at their lowest level since December 2014.

REFINERY DEMAND INCREASES

Another factor exerting downward pressure on stocks has been refinery activity, which has followed the typical pattern for this time of year when plants run full tilt to satisfy summer demand.

US refinery utilization rose 0.8 percentage point last week to 97.5% of capacity. Analysts were looking for a decline of 0.7 percentage point.

On the Gulf Coast, refinery utilization rose 0.5 percentage point to 97.6% of capacity. Greater refinery demand helped draw the region’s crude stocks 5.174 million barrels lower to 213.037 million barrels.

Another likely factor behind the USGC draw was exports, which set yet another record-high last week. Over the last four weeks, exports have averaged 2.28 million b/d, versus only 581,000 b/d a year ago.

It’s not surprising US exports have flourished considering the widening ICE Brent/WTI spread. Even though that differential has narrowed recently, that doesn’t mean exports won’t stay elevated.

For one thing, the Brent/WTI spread remains within the $3/b-$7/b range seen from August until mid-May, when US crude exports hit record highs on several occasions.

Further, a tight global market because of ongoing disruptions in Venezuela, Libya and potentially Iran down the road could place the onus on US production to help fill any voids.

On Tuesday, a senior State Department official told reporters the US government was trying to dissuade other countries from buying Iranian crude, warning that sanction waivers would generally not be granted.

In addition, the construction of pipelines from the Permian Basin in West Texas and New Mexico, as well as export-oriented infrastructure on the Gulf Coast, should improve logistics making US supply competitive abroad.

GASOLINE, DISTILLATES BUILD

US gasoline stocks increased 1.156 million barrels to 241.196 million barrels, compared with an average increase of 615,000 barrels from the corresponding weeks in 2013-2017.

Stocks on the Atlantic Coast built 1.169 million barrels to 67.094 million barrels, a 2.7% surplus to the five-year average.

US distillate stocks were little changed, up 15,000 barrels to 117.423 million barrels. The five-year average for the same reporting period shows a build of 222,000 barrels.

Gasoline stocks were expected to rise 160,000 barrels, while distillate stocks were expected to build 500,000 barrels.

Source: Platts

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