Falling U.S. oil production and increased refinery throughput in the week that ended April 29 failed to halt the historic rise in U.S. crude oil inventories, according to U.S. Energy Information Administration (EIA) data.
U.S. oil production continued its downward trajectory, falling 113,000 barrels per day (b/d) week over week to 8.825 million b/d and 394,000 b/d less than at the start of the year.
Lower production levels and an increase in U.S. refinery utilization of 1.6 percentage points to 89.7% would be expected to ease pressure on crude inventories, but such was not the case. EIA reported a 2.784-million-barrel increase to a record 543.394 million barrels.
Analysts surveyed by S&P Global Platts Monday were looking for U.S. crude oil stocks to have risen 1.7 million barrels, with refinery throughput rising 0.6 percentage points.
While falling U.S. tight oil production – in response to low prices – has raised hopes the oil market was beginning to rebalance, pushing New York Mercantile Exchange (NYMEX) crude oil futures 22% higher in April, production in the Lower 48 states was down only 30,000 b/d. Alaska accounted for 83,000 b/d of the decline.
Robert Merriam, EIA manager of petroleum supply statistics, said issues processing natural gas liquids at an undisclosed Alaskan oil field caused the sudden drop in output.
While Alaskan output will likely rebound as the processing issue is addressed, 2016 production is expected to fall at the BP-operated Prudhoe Bay field because of reduced drilling activity and seasonal maintenance.
In the 2016 Prudhoe Bay Plan of Development filed with the state, the company said it expects to produce between 20,000 b/d to 60,000 b/d less in the Initial Participating Area of Prudhoe, which is the core of the field. BP recently said it was laying off three of five rigs now operating at Prudhoe.
While BP will also reduce the amount of well workovers in 2016 due to low prices, oil field maintenance on Alaska’s North Slope, particularly in Prudhoe Bay, where more than half of ANS production occurs, typically begins in May and runs through August.
In June 2015, Alaska North Slope production fell 7% to 463,289 b/d after falling by 8% in May, according to state tax division data.
REFINERS BOOST RUN RATES DESPITE WORKS
The increase in total U.S. refinery throughput was driven by the Gulf Coast and the Midwest, where utilization rose 2.1 percentage points to 92.6% and 1.6 percentage points to 85%, respectively.
Refiners likely increased runs in response to healthy refining margins in each region.
The Louisiana Light Sweet cracking margin on the U.S. Gulf Coast (USGC) averaged $6.74 per barrel (/b) last week, up from $6.35/b a week earlier. In the Midwest, the Western Canadian Select coking margin averaged $16.27/b, up from $14.54/b.
The 2.1-percentage-point increase in Gulf Coast utilization seemed to drive a 2.925-million-barrel draw in regional stocks, which was negated by builds in the Midwest and on the Atlantic Coast — where imports rose by 312,000 b/d.
Utilization rates increased despite a rash of refinery outages last week.
ExxonMobil started planned maintenance at its 344,600 b/d refinery in Beaumont, Texas, with units affected including the crude distillation unit. Marathon also experienced issues with an alkylation unit at its 451,000 b/d Garyville, Louisiana, refinery.
In the Midwest, ExxonMobil started planned maintenance at two of the units at the 250,000 b/d Joliet, Illinois, refinery. Additionally, BP is carrying out planned maintenance on the ultra-former unit at its 430,000 b/d Whiting, Illinois, refinery.
ATLANTIC COAST GASOLINE IMPORTS ELEVATED
Gasoline imports into the Atlantic Coast remained elevated last week at 862,000 b/d, marking the second consecutive week above 800,000 b/d.
The last time imports into the region were above that level for two consecutive weeks was December 2014, while total U.S. imports — which the EIA reported at 946,000 b/d — were last higher in September 2015.
A strong New York Harbor gasoline price has the arbitrage wide open to pull barrels from Europe.
Delivered European blend stock for oxygenate blending (Eurobob) cargoes last week averaged a discount of $53.54 per metric ton (/mt) to front-month NYMEX reformulated blend stock for oxygenate blending (RBOB) futures.
Delivered Eurobob cargoes have traded at a discount to NYMEX RBOB since mid-February, with some traders reportedly locking in prices when the discount was over $100/mt for much of March.
An increase in imports on the Atlantic Coast drove regional stocks 2.379 million barrels higher. As a result, total U.S. gasoline stocks rose 536,000 barrels, even as Gulf Coast inventories slumped 1.966 million barrels and the Midwest posted a smaller draw of 397,000 barrels.
Analysts surveyed Monday by S&P Global Platts expected total U.S. gasoline stocks to fall 500,000 barrels. Excluding Atlantic Coast imports, the U.S. gasoline demand picture looks fairly robust. The four-week moving average of gasoline supplied — a proxy for implied* demand — rose to 9.474 million b/d, the highest level since the end of August 2015 at the heart of the summer driving season.
DISTILLATES STOCKS DECLINE AGAIN
For the third consecutive week, U.S. distillates stocks fell, declining 1.261 million barrels to 156.979 million barrels.
U.S. distillates stocks are down 6.51 million barrels since the start of April and had not declined for three consecutive weeks since October 2015.
The four-week moving average of distillate supplied rose 84,000 b/d to 4.049 million b/d, with EIA data showing similar increases in May in the past two years, as the planting season gets underway in the United States.
While weekly export estimates were flat week on week, the EIA releases export totals monthly, usually with a two-month lag. In the most recent data available, the Gulf Coast exported 18.27 million barrels of ultra-low sulfur diesel (ULSD) in February.
Sources said last week that cargoes booked in early April, at a time when delivered U.S. Gulf Coast ULSD cargoes were at a discount to Intercontinental Exchange (ICE) ULSD in Northwest Europe, were expected to leave at the end of the month, pushing export totals higher.
Additionally, exports to Latin America, which pulls in diesel to use during the Southern Hemisphere winter, are beginning to pick up. Peru and Argentina issued tenders in the past week for imports.
Analysts surveyed expected the draws in distillates stocks to halt, forecasting a 1.5-million-barrel build.
*Implied demand is the amount of product that moves through the U.S. distribution system, not actual end consumption.
Source: Platts