19-05-2017

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

oil

U.S. crude oil inventories declined for the sixth consecutive week, while gasoline and distillates stocks also fell, despite a jump in refinery utilization, according to U.S. Energy Information Administration (EIA) data and a commentary by Geoffrey Craig, oil futures editor, S&P Global Platts.

U.S. crude oil stocks fell 1.753 million barrels to 520.772 million barrels in the week that ended May 12, EIA data showed.

Analysts surveyed Monday by S&P Global Platts were looking for crude stocks to fall 2.2 million barrels, although expectations shifted Tuesday when American Petroleum Institute (API) data showed a build of around 900,000 barrels.

Inventories have drawn for six straight weeks by a total of 14.8 million barrels, although stocks are still 41.76 million barrels above where they stood at the end of 2016.

The main driver behind last week’s draw was refinery activity, as crude runs increased 363,000 b/d to 17.122 million b/d. That pulled the utilization rate up 1.9 percentage points to 93.4% of capacity.

Utilization has been unusually high since April after the New York Mercantile Exchange (NYMEX) reformulated blend stock for oxygenate blending (RBOB) crack against West Texas Intermediate (WTI) climbed above $21/b by the end of March and stayed above that level through early April.

A sense that refiners were creating more supply than the market could handle pulled the crack to around $15/b by May 1, but since then has retraced some of that decline. The crack has been around $18/b-$19/b this week.

Over the last five weeks, refinery utilization has averaged 93% of capacity, versus 89.4% last year during the same period.

A major question facing the market is whether refiners will be able to hold around these high utilization levels into the summer when refinery activity usually peaks.

Some analysts have argued that an extension of the OPEC supply cut agreement will prove more effective than the current six-month deal that began in January because seasonal refinery demand tends to be stronger in the second half of the calendar year.

Any signs that refinery demand starts sagging under the weight of bloated product stocks resulting from any springtime hard-running of refineries could undermine the efficacy of a potential OPEC supply cut extension.

U.S. Gulf Coast (USGC) REFINERY RUN RATE HIGHEST SINCE 2015

On the Gulf Coast, epicenter of the U.S. refinery complex, refinery utilization jumped 3.1 percentage points last week to 96.5% of capacity, its highest level since August 2015.

That helped USGC crude stocks draw 5.511 million barrels to 262.512 million barrels, which was the biggest decline by region.

USGC crude stocks have built 22 million barrels year-to-date, compared with an increase of 42.9 million barrels over the same period in 2016.

A slower pace of builds so far this year has trimmed the Gulf Coast’s surplus to the year-ago level to just 851,000 barrels, although stocks still sit 59.39 million barrels above the five-year average.

Another factor likely helping drain Gulf Coast crude stocks last week was total crude exports, which were up 393,000 b/d to 1.086 million b/d.

U.S. exports have been competitive against Middle East supply in Asia, with WTI for second-month delivery trading at a discount to Dubai crude for most of this year, instead of a premium seen in 2016.

Total U.S. crude exports have averaged 767,000 b/d year to date, compared with 509,000 b/d the last 10 weeks of 2016.

Greater exports have provided an extra outlet for rising U.S. crude output. Production averaged 9.305 million b/d the week that ended May 12, up 535,000 b/d from the end of 2016, according to EIA weekly estimates.

Imports increased 970,000 b/d to 8.59 million b/d last week, mitigating the size of last week’s crude draw.

Imports have averaged 8.172 million b/d year to date, which was 342,000 b/d above the level from 2016, despite the OPEC-led supply cut deal being in place since January.

By country of origin, imports from Saudi Arabia rebounded 406,000 b/d to 1.376 million b/d. Imports from Saudi Arabia have averaged 1.2 million b/d year to date, according to weekly EIA figures.

Other increases came from Canada, Colombia and Iraq, which saw imports rise by a total of 682,000 b/d.

GASOLINE PRODUCTION DOWN

U.S. gasoline stocks fell 413,000 barrels to 240.669 million barrels in the week that ended May 12, EIA data showed. Analysts were looking for a decline of 500,000 barrels.

Strong refinery activity has led to counter-seasonal builds. Over the last five weeks, stocks have increased 4.5 million barrels, compared with an average decline of 4.1 million barrels during the same period from 2012-16.

On the Atlantic Coast, home to the New York Harbor-delivered NYMEX RBOB futures contract, stocks increased 391,000 barrels to 70.157 million barrels, a surplus of 9.732 million barrels to the five-year average.

Despite last week’s jump in refinery utilization, gasoline production actually fell 32,000 b/d to 10.020 million b/d, as refiners focused more on distillate production.

Gasoline implied demand rose 44,000 b/d last week to 9.452 million b/d. Demand has averaged 9.306 million b/d the last four weeks, trailing the year-ago level by 252,000 b/d while exceeding the five-year average by 349,000 b/d.

DISTILLATES EXPORTS RISE

U.S. distillates stocks fell 1.944 million barrels last week to 146.824 million barrels. Analysts expected a draw of 1.3 million barrels.

Inventories have declined 13 of the last 14 weeks by 23.9 million barrels, surpassing the average draw of 9.1 million barrels over the same period from 2012-16.

Distillate stocks have fallen 5.3 million barrels below the level from the year prior, but the surplus to the five-year average is still 19.66 million barrels.

Implied* distillate demand has averaged 4.069 million b/d the last four weeks, which was nearly identical to last year and 134,000 b/d above the five-year average during the same period.

Distillate production rose 86,000 b/d last week to 5.042 million b/d, while exports increased 107,000 b/d to 1.266 million b/d.

On the Atlantic Coast, combined stocks of low and ultra-low sulfur diesel fell 166,000 barrels to 49.728 million barrels. Combined stocks are 777,000 barrels above a year ago and 18.7 million barrels above the five-year average.

* 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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