U.S. crude oil stocks are likely to have fallen 3 million barrels the week ended July 4 as refining rates remain elevated amid favorable margins, a Platts poll of analysts showed.The U.S. Energy Information Administration (EIA) is scheduled to release its weekly data at 10:30 a.m. EDT (1530 GMT) Wednesday.

Margins remain favorable enough to keep refiners moving, despite some refining issues experienced the week ended July 4. Among them were Phillips 66’s plans to shut part of its 146,000 barrels per day (b/d) Borger, Texas, refinery for as long as 35 days after it was unable to recover from a power failure, according to Carl Larry, president of Oil Outlooks.

"The economics of using WTI (West Texas Intermediate) were boosted lately with the rally in Brent, and that's all we need to feed the hungry drivers in the U.S.," Larry said.

The Brent-WTI spread had widened to a high of $9.65 per barrel (/b) two weeks ago. The spread narrowed closer to $7/b the week ended July 4, but that's still higher than a low of $3.27/b on April 11.

Analysts anticipate refinery utilization rates rose 0.5 percentage point to 91.9% of capacity, based on EIA data.

Cracking margins for imported Nigerian grades like Bonny Light and Brass River have been improving. Brass River margins averaged $5.87/b the week ended July 4, up from $5.37/b the week prior. Bonny Light showed a similar improvement. And this comes at a time when railed-Bakken margins have come off around $1/b, averaging just $4.51/b the week ended July 4, according to Platts data and Turner, Mason & Co. yield formulas.

But on the U.S. Gulf Coast, cracking margins for Light Louisiana Sweet have fallen to around $13.51/b the week ended July 4, down from $14.48/b the week prior. Coking margins have come off as well, with those for imported Western Canadian Select averaging $14.49/b the week ended July 4, down from $15.97/b the week before. Coking margins for Mexican Mayan have edged slightly higher to average $10.77/b, up from $10.15/b.

Tim Evans, commodity analyst at Citi Futures Perspective, said ongoing U.S. third-quarter refinery crude oil runs will translate into further stock declines "with the opening of the twin Seaway pipeline likely to mean new lows in Cushing, Oklahoma, inventories, at least as long as the Gulf Coast crude oil holds a sufficient premium over WTI to cover the cost of the shipment."

GASOLINE STOCKS TO HAVE DROPPED

U.S. gasoline stocks are expected to have fallen by 1 million barrels the week ended July 4, while distillate stocks are estimated to have risen 1.2 million barrels.

"Despite all the fears of Hurricane Arthur tapering the gasoline demand here, we think that it was overrated," Larry said.

Demand for the fuel, Larry said, is expected to be above 9 million b/d again the week ended July 4, with imports expected to be lower.

Implied demand* for gasoline during the June 27 reporting week was at 9.17 million b/d, up 355,000 b/d from the week prior.

Distillate demand during the June 27 reporting week was at 3.78 million b/d, up 132,000 b/d from the week prior.

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