Despite a surprise build in U.S. crude oil inventories last week, the oil complex touched intra-day highs Wednesday after the Energy Information Administration (EIA) reported larger-than-expected draw downs in gasoline and distillate inventories.
Crude futures initially dipped on the news, but quickly rebounded as the draw in product stocks seemed to embolden market bulls.
After the release of the EIA data, New York Mercantile Exchange (NYMEX) June crude oil touched an intra-day high of $48.95 per barrel (/b), up 64 cents. Intercontinental Exchange (ICE) July Brent neared $50/b, reaching $49.85/b at one point.
U.S. gasoline stocks fell 2.496 million barrels last week to 238.068 million barrels. Analysts surveyed Monday by S&P Global Platts were looking for a draw of 1.3 million barrels.
By region, the Midwest saw the biggest decline, with gasoline stocks falling 1.189 million barrels to 52.691 million barrels. The region’s refinery utilization fell 1.8 percentage points to 89% of capacity.
U.S. Atlantic Coast stocks decreased 602,000 barrels to 66.044 million barrels, driven by imports being down 97,000 b/d to 611,000 b/d.
Gasoline implied demand rose 97,000 b/d to 9.755 million b/d, surpassing the 2015 high even before the start of this year’s summer driving season. In 2015, implied demand reached 9.749 million b/d in July.
U.S. distillate inventories fell 3.17 million barrels last week to 152.162 million barrels. Analysts were looking for a draw of 1.4 million barrels. It was the fifth straight weekly decline. That drawdown has helped distillate stocks align more closely with historic levels.
Distillate inventories last week were 21.6% above the five-year average for the same time of year. Six weeks ago, stocks were at a 28% surplus to the five-year average.
On the Atlantic Coast, home to the New York Harbor-delivered NYMEX ultra-low sulfur diesel (ULSD) contract, stocks of low and ultra-low sulfur diesel fell 829,000 barrels to 48.951 million barrels, which was 82.8% above the five-year average.CRUDE STOCKS RISE
U.S. commercial crude oil stocks rose 1.31 million barrels to 541.294 million barrels in the week ending May 13, EIA data showed.
The build came as a surprise to analysts who expected crude stocks to have fallen last week by 3 million barrels because of a drop in Canadian imports due to the ongoing wildfires in Alberta, along with firmer U.S. refinery demand.
An estimated 1 million b/d of oil sands production has been lost since the Alberta wildfires began over two weeks ago.
It appears those fires have begun affecting flows to the south. Canadian imports fell 366,000 b/d last week to 2.587 million b/d. Canadian weekly imports have averaged 3.13 million b/d year to date.
Yet the big drop in Canadian imports did not have an equivalent impact on stocks. Most Canadian imports enter the U.S. through the Midwest. But inventories there fell only 111,000 barrels to 157.606 million barrels.
One possibility is that Midwest refiners replaced Canadian barrels by shipping crude from the U.S. Gulf Coast via the 1.2 million b/d Capline pipeline, which runs from St. James, Louisiana, to Patoka, Illinois.
Volumes on the Capline had been running close to minimum amounts, pipeline owners Marathon Petroleum, Plains All American and BP have said during quarterly earnings calls.
The blunted impact of the Alberta wildfires can also be seen in the physical oil market, insofar as differentials for Canadian crudes and competing US grades have not spiked, according to S&P Global Platts price data.
Canadian Syncrude rose to a premium of $2.65/b above West Texas Intermediate (WTI) calendar month average on May 9, which was above its 30-day average of plus 20 cents/b. But that was still below the plus $4/b seen regularly through March.
Western Canadian Select’s discount to WTI narrowed last week — averaging $11.99/b — but this was only slightly in from the year-to-date average of $13.59/b.
In the U.S., the price of Bakken crude, as valued at the Guernsey, Wyoming pipeline interconnection point, initially spiked to WTI minus $1.50 on May 3, but has been steady ever since. And the Mars crude oil price differential to WTI averaged a $3.22/b discount last week, nearly unchanged from the two previous weeks.
GULF COAST IMPORTS SURGE
Gulf Coast imports rose 638,000 b/d last week to 3.677 million b/d, the highest level since December. Total crude imports inched 22,000 b/d higher to 7.677 million b/d.
Last week saw an increase in imports from Colombia, Iraq, Mexico and Venezuela by a combined 767,000 b/d.
Waterborne imports of crude oil have been cost competitive. The ICE WTI/Brent spread has been nearly at parity since the front-month contract rolled from June to July.
Brent’s premium to WTI has been less than $1/b and Brent even flipped to a slight discount at one point this month.
And from a refiner’s perspective, coking margins on the Gulf Coast for Mexican Maya crude oil averaged $14.03/b last week, versus $9.90/b for Mars, S&P Global Platts data showed.
REFINERY DEMAND RISES
U.S. refinery utilization increased 1.4 percentage points last week, slightly exceeding analysts’ expectations of a 1.3 percentage point increase.
At 90.5% of operable capacity, refinery utilization has moved into the plus-90% range that usually represents the beginning of summer demand.
By region, the biggest jump in refinery utilization occurred on the U.S. Gulf Coast (USGC), where the run rate increased 4 percentage points to 93.3% of capacity.
Greater refinery demand helped limit the build in USGC crude stocks to a rise of 1.178 million barrels to 282.411 million barrels.
U.S. crude oil production fell for the 10th week in a row. Output decreased 11,000 b/d to 8.791 million b/d.
Alaskan crude oil production rose 19,000 b/d to 506,000 b/d, but output from the Lower 48 states was down 30,000 b/d to 8.285 million b/d.
Source: Platts