U.S. commercial crude oil stocks are expected to have fallen by 2.6 million barrels during the reporting week ended July 18, according to a Platts analysis and survey of oil analysts.The U.S. Energy Information Administration (EIA) is scheduled to release its weekly data at 10:30 a.m. EDT (1430 GMT) Wednesday.

The projected decline is likely to come amid still-strong refinery runs, even though these too are expected to drop. U.S. refineries processed a record 16.63 million barrels per day (b/d) of crude oil in the week ended July 11, EIA data showed. This had refinery utilization rates running at 93.8% of capacity. Analysts expect run rates probably fell by about 1 percentage point, and Platts data largely confirms a decline is likely.

Motiva Enterprises the week ended July 18 cited an unspecified operational issue related to heavy rainfall at the company's 600,000 b/d Port Arthur, Texas, refinery, the largest in the U.S. The issue was reported to have begun in the afternoon Friday, and may have occurred too late in the week to be reflected in either the API or EIA data windows.

But ExxonMobil acknowledged a production impact -- albeit minimal -- at its 584,000 b/d Baytown refinery after a small hole was discovered in a pipe in one of the facility's catalytic light-ends units. And Valero the week ended July 18 shut a hydrocracker at its 290,000 b/d Port Arthur refinery. Flint Hills Resources also reported an issue with a hydrocracker the week ended July 18 at its 230,000 West Refinery in Corpus Christi.

In California, Chevron the week ended July 18 shut a fluid catalytic cracker at its 243,000 b/d Richmond refinery following a fire. And Phillips 66 suffered a power loss at its 41,600 b/d Santa Maria refinery in Arroyo Grande.

IMPORTS UNLIKELY TO RALLY

Crude oil stocks are unlikely to get much of a boost from higher imports, as refining margins along the U.S. Gulf Coast (USGC) continue to support North American grades. On a 60-day moving average, cracking margins for Louisiana Light Sweet crude oil are around $13.50 per barrel (/b), compared with just $3.50/b for Nigerian Brass River.

Platts margins reflect the difference between a crude oil's netback and its spot price. Netbacks are based on crude oil yields, which are calculated by applying Platts product price assessments to yield formulas designed by Turner, Mason & Co.

Likewise, USGC coking margins for Western Canadian Select crude oil are more than $14/b on a 60-day moving average. West Texas Sour coking margins are even better, coming in just below $16/b. Margins for Angolan Cabinda averaged just $4.89/b during the same period.

Worldscale (w)* tanker rates for Caribbean-USGC routes, basis 130,000 kilotons, have jumped since the start of July, indicating either a flurry of import activity, or a shortage of available tonnage. Platts-assessed Caribbean-USGC rates were at w122.5 Friday, up from just w82.5 on July 1.

Platts cFlow ship-tracking software shows at least four vessels arrived in the USGC from Mexico the week ended July 18. Comparatively strong coking margins for Mexican Maya tend to support this. On a 60-day moving average, Maya coking margins are around $9.50/b.

PRODUCT STOCKS EXPECTED TO BUILD

U.S. gasoline stocks are expected to have risen by 1.2 million barrels the week ended July 18 and distillate stocks are expected to have risen 1.8 million barrels, according to analysts.

With strong margins and steady runs, refined product production is unlikely to come off at this point in the summer season. U.S. gasoline production on a four-week moving average has been above 10 million b/d as far back as the week ended May 9, EIA data shows. Implied demand** for gasoline, however, has been struggling to keep up. Implied demand for gasoline on a four-week moving average for the week ended July 11 was just 8.99 million b/d.

Distillate production during a similar period was more than 5 million b/d, and exports are estimated to have been above 1 million b/d for the last four reporting weeks.

*Implied demand is the amount of product that moves through the U.S. distribution system, not actual end consumption.

**Worldscale freight rates are used to price the cost of shipping crude or refined products from one port to another by tanker.
Source: Platts