A seasonal uptick in refinery utilization combined with a likely drop in Canadian imports due to the ongoing Alberta wildfires likely pushed U.S. crude oil stocks lower last week, according to a preview of the U.S. Energy Information Administration (EIA) data by S&P Global Platts. Analysts surveyed by S&P Global Platts expect U.S. EIA data, which will be released Wednesday, to show a 3.3 million-barrel decline.
Survey of Analysts Results:
-Crude oil stocks expected to decrease 3.3 million barrels
-Refinery utilization expected to increase 0.9 percentage points
-Gasoline stocks expected to draw 1.6 million barrels
-Distillate stocks expected to decline 900,000 barrels
S&P Global Platts Analysis
One factor that could have limited the size of last week’s drawdown in crude oil was strong U.S. Gulf Coast (USGC) imports. USGC imports averaged 3.677 million barrels per day (b/d) in the week ended May 13, the highest level since December, and far above the year-to-date average of 3.1 million b/d.
Waterborne imports look cost-competitive, encouraging Gulf Coast refiners to source barrels from abroad. The Intercontinental Exchange (ICE) West Texas Intermediate (WTI)/Brent spread has been nearly at parity since the front-month contract rolled from June to July.
Brent has traded at a premium of less than $1 per barrel (/b) since then, and briefly traded this month at a discount to WTI.
For Gulf Coast refiners, margins also reveal foreign grades looking favorable relative to U.S. crude oil. Coking margins for Mexican Maya crude averaged $15.51/b last week, compared with $11.25/b for Mars, S&P Global Platts data showed.
An uptick in Gulf Coast imports is important because it comes at a time when wildfires in Alberta have knocked out production from the United States’ top supplier.
Canadian oil sands production has fallen an estimated 1.28 million b/d, dragging down imports 366,000 b/d to 2.587 million b/d the week ended May 13.Favorable weather over the weekend helped control the blazes, but the volatile nature of the fires has made it difficult to say with certainty when output will return.
At least some of the imports on the Gulf Coast could be making their way to the Midwest along the Capline pipeline, which runs from St. James, Louisiana, to Patoka, Illinois, helping compensate for declines in Canadian imports.
CANADIAN CRUDE DIFFERENTIALS
But Midwest refiners also likely turned to regional stocks, which stood at 157.6 million barrels the week ended May 13. That was a 40% surplus to the five-year average for the same time of year.
Such a large amount of crude in storage has minimized the impact of the Alberta wildfires on physical oil differentials for key Canadian grades and U.S. competing grades, which failed to spike as a result.
That said, these physical differentials strengthened last week, a possible sign that the Canadian fires were finally tightening market conditions.
Canadian Syncrude averaged a premium of $2.03/b above WTI calendar month average (CMA) last week, compared with $1.46/b the week before. But that was still below the plus $4/b seen regularly through March.
Western Canadian Select’s discount to WTI CMA averaged $11.70/b last week, the smallest discount since last July.
In the U.S., crude oil from the Bakken basin ex-Guernsey, Wyoming, averaged WTI minus $1.53/b last week, compared with minus $1.75/b the two previous weeks. And Mars’ differential to WTI averaged a $3.10/b discount last week, compared with a discount of $3.24/b the previous two weeks.
GASOLINE, DIESEL STOCKS SEEN DRAWING
Analysts expect refinery utilization increased 0.9 percentage points to 91.4% of capacity last week, contributing to the crude stock draw.
If confirmed, the refinery run rate will lag the year-ago rate, which stood at 93.6% of capacity, but still continue its upward trend.
Refinery utilization was below 90% of capacity the first week in May, before starting to climb higher alongside refining cracks.
The front-month ICE reformulated blend stock for oxygenate blending (RBOB) crack against Brent traded above $20/b last week, up from a recent low of $16.75/b May 10. The front-month ICE ultra-low sulfur diesel (ULSD) crack against Brent rose above $14/b last week after having been less than $11/b as recently as May 13.
Despite the higher refinery utilization, analysts believe product stocks declined last week. Gasoline stocks are expected to show a drawdown of 1.6 million barrels, while distillate stocks likely fell 900,000 barrels.
One incident helping support the product market around New York Harbor was a fire that broke out last Friday at Philadelphia Energy Solutions’ 335,000-b/d refinery, which was heard to have affected the facility’s reformer and hydrotreater.
While too late to affect the pending Wednesday data from EIA, the closure of French refineries due to a workers’ strike that began last week and was spreading Monday could weigh on U.S. distillate stocks in coming weeks.
An extended outage, as well as relatively cheap ex-USGC medium range (MR) freight rates, could lead to more U.S. exports of diesel to Europe, which have otherwise been constrained of late by a closed arbitrage.
U.S. Gulf Coast distillate flows to Europe landing in May, which consist mainly of diesel, look set to total 1.95 million metric tons (mt), according to data from cFlow, S&P Global Platts’ trade flow software.
That is down slightly from April, when 2.03 million mt of product arrived in Northwest Europe, the Mediterranean and North Africa.
Source: S&P Global Platts