U.S. crude stocks came under pressure last week as a result of Alberta wildfires disrupting Canadian production that limited supplies from the U.S.’ single largest supplier, according to a Monday preview of the U.S. U.S. Energy Information Administration (EIA) data by S&P Global Platts.
Survey of Analysts Results:
-Crude oil stocks expected to increase 300,000 barrels
-Refinery utilization expected to rise 0.5 percentage points
-Gasoline stocks expected to fall 800,000 barrels
-Distillate stocks expected to drop 1.3 million barrels
S&P Global Platts- Analysis:
Imports on the Gulf Coast could have increased in response to the Intercontinental Exchange (ICE) West Texas Intermediate (WTI)/Brent spread, which moved toward parity since the front-month contract’s roll from June to July.
Analysts surveyed Monday by Platts were divided on whether U.S. Energy Information Administration (EIA) data released Wednesday will show U.S. crude oil inventories increased or decreased last week.
On average, crude stocks were forecast to rise for the fifth consecutive week, by 300,000 barrels.
Fires in the heart of Alberta’s oil sands region which erupted May 1 have knocked an estimated 1 million barrels per day (b/d) out of production. That should reduce imports from Canada, the top crude supplier to the United States.
The lost output had an immediate market reaction, bidding up the light crude benchmark Syncrude Sweet Premium. On Monday, Syncrude traded $2.65/b above front-month New York Mercantile Exchange (NYMEX) crude futures, compared with a discount of 25 cents/b May 3 before the outages began.
The Canadian outage also boosted Bakken ex-Guernsey differentials. The discount for Bakken ex-Guernsey to front-month NYMEX crude futures averaged $1.78/b last week, versus $2.64/b the week prior. Guernsey, Wyoming is connected to Wood River, Illinois via the 145,000 b/d Platte Pipeline.The fire’s impact will probably be seen next in terms of U.S. crude draws in the Midwest, a region that relies heavily on Canadian oil to supply refineries.
Midwest refiners imported a record-high 2.5 million b/d of Canadian crude in February, according to EIA data. Midwest refiners processed an average of 3.6 million b/d of crude in February.
‘Like others in our industry, Phillips 66 anticipates reductions to crude supply as a result of the fires in the Ft. McMurray area,’ company spokesman Dennis Nuss in an email Monday.
To compensate, Midwest refiners likely drew barrels from ample storage. Midwest crude inventories equaled 158.3 million barrels the week ending April 29, a 40% surplus to the five-year average for the same time of year.
Not only was supply curtailed from Canada, but refining margins also favored running domestic crudes over Canadian Syncrude. Midwest cracking margins using Syncrude were negative on average last week, while Bakken averaged $9.30/b and West Texas Intermediate (WTI) averaged $5.69/b, Platts data shows.
The recent spike in Syncrude worsened refining margins, though the profitability of processing the grade was already thin or worse for some time because of its relatively large yield of residual products.
Demand for WTI crude could have helped draw barrels from Cushing, Oklahoma, to Midwest refiners along the 215,000 b/d Ozark Pipeline, which runs from Cushing to Wood River, Illinois.
A significant drawdown at Cushing would be noteworthy considering the hub’s stocks have built steadily this year, reaching a record-high 67.5 million barrels in March.
Inventories have receded slightly since then, totaling 66.3 million barrels the week ending April 29, or 89% of its adjusting working capacity.
The chain reaction from the Alberta wildfires would have been more severe if this occurred during peak summer demand instead of a time when Midwest refiners were already operating at reduced rates.
Midwest refinery utilization averaged 85% the week ending April 29, slightly above its year-to-date low of 82.4% in early April.
Repairs have kept a lid on total refinery utilization rates. ExxonMobil shut a crude distillation unit at its 560,000 b/d refinery in Baytown, Texas last week, while Citgo began a planned turnaround at its 167,000 b/d Lemont, Illinois, refinery.
Analysts are looking for refinery utilization to have increased 0.5 percentage point to 90.2% of capacity. If analysts’ expectations are confirmed, refinery utilization would still lag the year-ago level, which stood at 91.2% of capacity.
REFINED PRODUCTS LIKELY DREW
Any potential struggles Midwest refiners faced last week because of the Canadian wildfires would have been buffered by relatively high levels of gasoline and diesel stocks.
For the week ending April 29, Midwest gasoline inventories totaled 54.029 million barrels, an 8.3% surplus to the five-year average for the same time of year.
Midwest stocks of low and ultra-low sulfur diesel were 33.4 million barrels, which exceeded the five-year average by 11% for the same period.
Despite the higher refinery utilization rate, analysts expect U.S. gasoline stocks fell 800,000 barrels last week, while U.S. distillate stocks are seen drawing 1.3 million barrels.
Source: Platts