With a massive amount of U.S. Gulf Coast (USGC) refinery capacity entering seasonal turnarounds last week, U.S. refinery utilization rates likely fell, putting upward pressure on already bloated crude stocks, according to a Platts analysis following its weekly survey of analysts.

Further builds will likely continue to weigh on New York Mercantile Exchange (NYMEX) crude oil futures, which were trading just above $30 per barrel (/b) during afternoon U.S. trading Monday.

The potential impact on U.S. refined product stocks -- which could dip as less is churned out -- presents a limited upside to both NYMEX ultra-low sulfur diesel (ULSD) and reformulated blend stock for oxygenate blending (RBOB) futures, the former holding precariously above $1 per gallon (/gal) just ahead of the NYMEX settle Monday.

Analysts surveyed Monday by Platts expect US crude stocks to have risen 2 million barrel last week when the U.S. Energy Information Administration (EIA) releases its weekly inventory report Wednesday. The most recent data pegs U.S. stocks at 482.3 million barrels, up 36.5% on the five-year average.

Analysts expect refinery utilization rates to have fallen 1.3 percentage points to 91.2% of capacity.

USGC maintenance begun last week includes work at three of the region's largest refineries. The USGC is home to more than 50% of all U.S. refinery operable capacity.

Motiva has shut the heavy crude unit at 600,000-barrels-per-day (b/d) Port Arthur, Texas, refinery for four-six weeks. Work will also be done on the diesel hydro treater. Marathon also started work last week on the ultra-cracker at its 451,000 b/d Galveston Bay refinery.

Also in Texas, Phillips 66 is performing work on the boiler for the gasoline-making fluid catalytic cracker at the 146,000 b/d Borger refinery. Also, Alon has started planned maintenance on the fluid catalytic cracker at its 70,000 b/d Big Spring refinery.

Additionally, ExxonMobil is set to shut a light sweet crude unit at its 344,600-b/d refinery in Beaumont for planned work starting Monday, which could have an impact on the crude slate at the plant and therefore, affect imports. Likewise, work has started on a VGO hydro treater and a delayed coker at Shell/PMI's 340,000-b/d joint venture Deer Park refinery.

With so much of the region's refineries undergoing maintenance, it is likely more U.S. production will head into storage. Stocks at Cushing, Oklahoma -- delivery point for the NYMEX crude futures contract -- were at a record 63.91 million barrels for the week ended January 1, EIA data shows.

The prompt NYMEX crude contango* has supported storage, trading around $1.14/b Monday, in slightly from the 30-day moving average of $1.25/b. Over a longer spread, the prompt-month/12th month contango was trading around $8.32/b, out from just $7.45/b over a 30-day moving average.

With working storage capacity at Cushing nearing 88%, storage plays could begin to get tight, widening discounts for North American crudes. Working storage capacity excludes tank bottoms and contingency space.

With export restrictions lifted, traditional dynamics like the above -- USGC refinery runs backing production into storage -- could put more barrels onto the global market, should an arbitrage opportunity offer better economics than storage.

The U.S. has already exported two Eagle Ford crude cargoes. Platts cFlow ship-tracking software shows the first cargo is midway through the Atlantic Ocean destined for Gibraltar, likely putting its eventual destination somewhere in the Mediterranean. The second cargo appears to have just left Galveston Bay, heading toward the French port of Lavera.

U.S. GASOLINE, DISTILLATE STOCKS
U.S. gasoline inventories likely increased last week, though by less than the huge 10.6 million barrel build seen at the end of December, as a seasonal slowdown in blending activity puts upward pressure on stocks.

The amount of ethanol blended with gasoline components to produce finished gasoline typically declines around this time of year.

Analysts surveyed Monday expect gasoline stocks increased 1.5 million barrels the week ended January 6, 2016.

The extent to which refiners also slow down operations would help ease pressure on inventories as fewer unfinished gasoline components would have entered the terminals.

Less refinery activity would also mitigate the glut of diesel stocks that has formed after an unusually warm early winter in the U.S. hurt heating oil demand. Analysts surveyed are looking for distillate stocks to have decreased 1.2 million barrels last week.

The lack of demand for prompt delivery has been visible in the steep contango for NYMEX ULSD, which is unusual for winter. On December 14, the front-month/sixth-month spread was nearly minus 16 cents/b, compared with backwardated** 10 cents/b a year prior.

The recent arrival of cold weather in the U.S. could turn the tide, helping inventories decline. Already, the NYMEX ULSD contango has begun to ease relative to mid-December. The front-month/sixth-month spread averaged 10 cents/gal last week.
Source: Platts