U.S. crude oil stocks are expected to have risen 2.1 million barrels the week ended April 25, even as refinery run rates remain higher than usual for this time of year, a Monday survey of analysts polled by Platts showed.
The U.S. Energy Information Administration (EIA) is scheduled to release its weekly data at 10:30 a.m. EDT (1530 GMT) Wednesday.

The increase in stocks is supported by what analysts expect to be continued builds in U.S. Gulf Coast (USGC) crude oil stocks.

USGC crude oil stocks reached a record 209.6 million barrels the reporting week ended April 18. At the same time, total U.S. commercial crude oil stocks rose 3.52 million barrels to 397.66 million barrels. That is the highest on record since the EIA began tracking the data in 1982.

Analysts from Macquarie said in a research note Monday that high USGC refinery runs, at 94.1% of capacity for the EIA's April 18 reporting week, were masking the extent of that region's oversupply.

Macquarie estimates that USGC crude oil demand has increased 930,000 barrels per day (b/d) in 2014. The problem, they said, is that crude oil supply increased by an even more impressive 1.05 million b/d. Without the incremental demand, the analysts estimate that USGC stocks could have reached as high as 314 million barrels during the April 18 reporting week.

"There is visible additional supply set to hit the region as 2014 progresses, and if demand cannot keep pace, we envision even higher stock levels and likely wider discounts for Gulf Coast crudes ahead," the analysts said. "The current environment places a high burden on the industry's ability to find new sources of demand to balance the Gulf Coast crude market."

USGC CRUDE OIL SPREADS NARROWED, BRENT-WTI WIDENS

The spreads of Light Louisiana Sweet and Light Houston Sweet to Brent crude oil have narrowed from around a $15 per barrel (/b) discount to Brent in November 2013 to average closer to $4-$5/b so far in 2014 despite record USGC inventory levels.

But the analysts expect those spreads to widen in the second half of 2014 given the possibility of even higher USGC crude oil stocks ahead.

In the futures market, though, the front-month, Brent-WTI spread widened to $9.24/b on April 25, up from a low of $3.24/b just two weeks earlier.

New York Mercantile Exchange (NYMEX) front-month crude oil was the weakest segment of the global petroleum complex during the April 18 reporting week, reflecting the waning influence of declining stocks at Cushing, Oklahoma, while IntercontinentalExchange Brent firmed amid ongoing worries regarding Russian oil exports.

Several analysts expect crude oil inventories to remain tight at the NYMEX delivery hub at Cushing, where stocks are estimated to have fallen by around 1 million barrels the week ended April 25.

Cushing inventories were at 26.04 million barrels during the April 18 reporting week, EIA data showed, putting stocks at a 34% deficit to the EIA five-year average.

Bill O'Grady, chief market strategist at Confluence Investment, estimated that total U.S. crude oil stocks rose 3 million barrels the week ended April 25.

While demand for products like gasoline remains low in the U.S., O'Grady said, marginal barrels are being exported and skewing the normal seasonal patterns.

"The U.S. economy is doing marginally better, but not great, and the wet blanket remains high private sector debt levels ...” O'Grady said. “It is tough for the economy to get signs of traction as banks don't want to lend, and that ends up stifling consumption [of oil]."

"We are seeing more product exports,” he said. “And refining it before selling it is good on one hand because it's value added, but it also limits how much you can get out of the U.S. refining sector."

"Run levels are likely to be well into the 90s this summer," he added.

RUN RATES TO RISE, PRODUCT STOCKS MIXED

Analysts polled estimate U.S. refinery utilization rates to have inched 0.3 percentage point higher the week ended April 25 to 91.3% of capacity, based on EIA data.

Analysts contend that the refinery maintenance season was likely bottoming out and crude oil stock builds could slow in the coming weeks.

ExxonMobil on April 21 shut a crude oil distillation unit at its joint-venture, 200,700 b/d refinery in Chalmette, Louisiana, for an unspecified period, Platts data showed. The work was said to be planned.

On the same day, ExxonMobil shut a crude oil distillation unit at its 365,000 b/d Beaumont, Texas, refinery for six weeks of work.

Also the week ended April 25, Petrobras' Pasadena Refining shut a fluid catalytic cracking (FCC) unit at its 106,000 b/d refinery in Pasadena, Texas, after an upset caused a release of catalyst and flaring for about 14 hours ending April 22, the company said in a filing with the Texas Commission on Environmental Quality.

In restarts, reports showed that Tesoro completed maintenance the week ended April 25 at the company's Los Angeles, California, refining complex following planned and unplanned repairs.

BP is said to have plans to restart its 80,000 b/d FCC at its Whiting, Indiana, refinery the week of May 5.

"I will likely be still looking for build in crude stocks over the next week or two as refiners kick in ... and the summer driving season picks up," O'Grady said.

U.S. gasoline stocks are expected to have declined 1.75 million barrels the week ended April 25, while U.S. distillate stocks are estimated to have risen 1 million barrels.

NYMEX RBOB futures were the firmest element of the complex the week ended April 25 as declining U.S. gasoline stocks and seasonal demand prospects have been supportive to prices. However, the market should be on alert for a possible seasonal price peak, said Tim Evans, commodity analyst at Citi Futures Perspective.

Front-month, ultra-low-sulfur diesel futures firmed over the reporting week and the forward curve remains higher than year-earlier levels, Evans noted, as is consistent with a deficit in U.S. distillate stocks to the EIA's five-year average.

As of the April 18 reporting week, distillate stocks were 2.4% lower than the same week in 2013 and were at a 16.7% deficit to the five-year average.
Source: Platts