US crude stocks build amid laggard refinery utilization

US crude inventories again moved higher last week as shoulder-season turnaround work blunted refinery demand, US Energy Information Administration data showed Wednesday.

Commercial crude inventories increased 3.36 million barrels during the week ended January 31 to 435.01 million barrels, according to EIA data.

Despite building for a second straight week, nationwide crude inventories tightened compared with historic levels, continuing a trend that has persisted since late-December. Last week, stocks were at a 2.3% deficit to the five-year average, down from a 1.7% deficit the week prior.

The crude build was concentrated on the US Gulf Coast, where stocks moved 4.92 million barrels higher to 226.52 million barrels. Inventories at Cushing, Oklahoma, the delivery point of the NYMEX crude contract, were up 1.07 million barrels at 36.71 million barrels

Refinery utilization ticked up 0.2 percentage point to 87.4% of capacity, pulling net crude inputs up 50,000 b/d to 15.97 million b/d.

Refiners are facing a heavier-than-normal slate of turnaround work this year, and refinery runs rates fell 2.3% behind the five-year average. Total offline crude distillation capacity was at 2.84 million b/d last week, S&P Global Platts Analytics data showed, up about 640,000 b/d from year-ago levels.

USGC refinery utilization dipped 1.7 percentage points and was at a 12-week low 90.2% of capacity, but this decline was blunted by uptick in utilization rates across all other regions, including a 3-point increase in Midwest utilization to 90.3% of capacity.

STRONG EXPORTS COULD FACE HEADWINDS

US crude exports have been sufficiently strong in recent weeks to balance weak refiner demand and growing production levels. Last week, exports averaged at 3.41 million b/d, down 100,000 b/d from the week prior but still above the year-to-date average. Weekly crude exports have held above 3 million b/d since mid-November.

But US exports could face headwinds in coming weeks due to competition from barrels displaced from Chinese markets facing coronavirus-related demand slowdowns.

Sinopec, the world's biggest refiner, plans to cut 10% throughput of its total capacity of 5.89 million b/d capacity in February, industrial sources with knowledge told S&P Global Platts. Initial estimates show Chinese crude runs could be about 1 million-2 million b/d lower for February than originally expected, according to an S&P Global Platts Analytics report.

The emergence of a contango structure in WTI forward curve could also blunt export volumes. Contango is a structure which shows longer-dated oil futures presently trading higher than the prompt price, which can incentivize traders to store crude.

Prompt-dated WTI futures have been in contango since mid-January, but the rest of the curve has since weakened amid concerns that the coronavirus outbreak in China could stunt global demand growth. On Tuesday, the year-ahead March WTI contract settled at a 15 cent/b discount to front-month, marking the first contango in one-year WTI futures since June 2019.

GASOLINE STOCKS RETREAT FROM ALL-TIME HIGHS

Total US gasoline stocks edged down 91,000 barrels to 261.14 million barrels during the week ended January 31, according to EIA data. The counter-seasonal draw snapped 12 consecutive weeks of builds that pushed inventories to all-time highs in late January.

On the US Gulf Coast, where gasoline inventories have set fresh record highs for four straight weeks, stocks dipped 1.80 million barrels to 93.98 million barrels amid a 337,000 b/d uptick in exports to 970,000 b/d.

Nationwide distillate fuel stocks slipped 1.51 million barrels to 143.26 million barrels, putting them roughly 4% behind the five-year average.

The arbitrage incentive for moving USGC jet fuel into Northwest Europe turned positive last week for the first time since November, Platts Analytics data showed. A number of ships were heard fixed for transatlantic jet shipments on Wednesday, market sources told Platts.

Total jet fuel exports were up 95,000 b/d at 300,000 b/d last week, EIA data showed.