U.S. commercial crude oil stocks dropped 3.7 million barrels to 367.37 million barrels during the reporting week ended July 25, according to U.S. Energy Information Administration (EIA) data released this week.The draw far surpassed the 2.1 million-barrel draw analysts had been expecting, and largely came about from still-robust crude oil runs at U.S. refineries, as well as imports rallying 337,000 barrels per day (b/d) to 7.74 million b/d.

Even though crude oil runs at U.S. refineries slipped 47,000 b/d, at 16.55 million b/d runs are still exceedingly strong, and remained comfortably above the 16 million b/d mark for a fifth consecutive EIA reporting week.

Runs last approached these levels ahead of winter 2013, when U.S. refineries processed 16 million b/d or more in five out of six reporting weeks between November 29 and January 3.

U.S. refinery utilization rates dropped 0.3 percentage points to 93.5% of capacity, in line with analysts' expectations.

Crude oil runs on the U.S. Gulf Coast (USGC) -- home to 51% of U.S. operable capacity -- fell 37,000 b/d to 8.59 million b/d, while imports in the region jumped 383,000 b/d to 3.81 million b/d. In turn, USGC crude oil stocks rose 447,000 barrels to 197.38 million barrels.

USGC runs likely took a hit the week ended July 25 after ExxonMobil's 584,000 b/d Baytown, Texas, refinery experienced a compressor trip, in addition to any lingering issues at Shell/Saudi Aramco joint venture Motiva's 600,000 b/d Port Arthur refinery following weather-related issues the week prior.

EIA data show imports of Saudi crude oil, which largely feed the Motiva facility, dropped 397,000 b/d to 896,000 b/d the week ended July 25.

Meanwhile, imports from Venezuela rallied 390,000 b/d to 1.01 million b/d the week ended July 25. Many of these headed to the USGC, likely tied to term deals. Citgo and Valero are typically the largest importers of Venezuelan crude oil.

Platts data show differentials for Venezuelan Mesa crude oil have improved over the past few weeks, with the grade assessed at Dated Brent minus 81 cents per barrel (/b) Tuesday, up from minus $3.90/b as recently as July 8.

Coking margins for Mesa were over $6/b at that time, and between $7/b and $8/b in the weeks immediately preceding, suggesting the higher imports could be tied to better refining economics.

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.

The import activity likely helped to boost Caribbean-USGC freight rates over the past two weeks, as Platts data show Suezmaxes on that route jumped to Worldscale (w)* 122.5 on July 18 from w90 on July 15.

CUSHING STOCKS EDGE LOWER

Crude oil stocks at Cushing, Oklahoma -- delivery point for the New York Mercantile Exchange (NYMEX) crude oil futures contract -- fell 924,000 barrels to 17.9 million barrels the week ended July 25. This puts Cushing stocks at their lowest since August 2008, and more than 24,000 barrels below year-ago levels.

While some of that crude oil is likely heading south to the USGC, Midwest refineries have been operating at near-record levels, which is likely eating up some of the Cushing supply. Despite an 82,000 b/d week-over-week decline, Midwest refinery runs at 3.71 million b/d are not far shy of the record 3.82 million b/d set in the week ended July 11.

EIA data pegged Midwest refinery utilization rates at 97.4% of capacity the week ended July 25, down from the 100.3% of capacity for the week ended July 11.

Total Midwest crude oil stocks dropped 2.12 million barrels to 83.89 million barrels the week ended July 25. A 217,000 b/d decline in Canadian imports, which fell to 2.53 million b/d, likely assisted the draw.

U.S. DISTILLATE STOCKS RISE

EIA data show U.S. distillate stocks rose 789,000 barrels to 126.72 million barrels, about half of what analysts had been expecting. The build was supported by strong production at just over 5 million b/d. While down 194,000 b/d week over week, production has been above 5 million b/d for the past four reporting weeks.

As with total refinery runs, U.S. distillate production has not seen these levels since early last winter.

Exports are still strong, which EIA estimates edged slightly higher to 1.19 million b/d from 1.15 million b/d over the prior five reporting weeks.

Platts ship-tracking software cFlow shows four vessels left the USGC the week ended July 25 headed for the U.K. Continent laden or part-laden with clean products.

The more accurate EIA monthly figure for April shows U.S. distillate exports at 1.17 million b/d. May data is expected to be released later Wednesday.

Meanwhile, U.S. gasoline stocks continue to be ample, rising 365,000 barrels to 218.24 million barrels the week ended July 25. This puts gasoline stocks at a near 1% surplus to the EIA five-year average. Analysts had been looking for a 1.1 million-barrel build.

Implied demand** for gasoline got a boost the week ended July 25, rising 214,000 b/d to just over 9 million b/d.

Stocks on the U.S. Atlantic Coast -- home to the New York Harbor-delivered NYMEX RBOB contract -- fell 224,000 barrels to just over 60 million barrels. However, stocks are nearly 5% above their five-year average.

USGC gasoline stocks rose 1.94 million barrels to 75.47 million barrels.

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

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