US crude build extends as refinery demand slows: EIA

New York — US crude inventories expanded for a fifth straight week last week amid a slowdown in refinery demand, but the build was pared by continued strong export activity, Energy Information Administration data showed Wednesday.

Commercial crude stocks increased 460,000 barrels to 443.34 million barrels during the week ended February 21, EIA data showed Wednesday.

The crude build was centered on the US Gulf Coast, which saw stocks surge 1.96 million barrels to an 11-week high 232.62 million barrels. Inventories were also 910,000 barrels higher at Cushing, Oklahoma, the delivery point of the NYMEX crude contract, pushing storage there to 39.15 million barrels.

Nationwide refinery utilization slipped 1.5 percentage points to 87.9% of total capacity, pushing net crude inputs down 200,000 b/d to around 16 million b/d. While this slowdown in refiner demand padded crude stocks last week, net crude inputs were still notably strong for this time of year at more than 2% above the five-year average.

Strong demand for linefill for the final sections of the Gray Oak and EPIC pipelines likely diverted Permian production from Cushing last week, exacerbating the USGC stock build. Both Gray Oak and EPIC, which are slated for full service in the second quarter of 2020 and the end of the first quarter, respectively, move crude from the Permian Basin to Corpus Christi, Texas. The lines initially started moving barrels late last year, but added linefill is required as the final sections are finished.

This demand for linefill crude pushed WTI in Midland, Texas, to a $1.65/b premium to WTI at Cushing on Friday, the strongest differential since September 9, 2015, according to S&P Global Platts data.

The build out of Permian-direct pipeline capacity is likely to result in increased crude flows from West Texas oil fields directly to coastal export terminals, bypassing Cushing. Midwest receipts of USGC crude were at a 21-month low 20.94 million barrels in November 2019, the latest EIA data showed.

The USGC crude build was blunted by a 93,000 b/d increase in exports to 3.66 million b/d, an eight-week high.

Although US crude shipments remain on a longer-term upswing, the viral epidemic extending from China is putting a damper on crude movements out of South Texas as demand weakens in Asia and much of the world. The Port of Corpus Christi said last week that it expects February crude exports to fall from January, when it shipped a record 1.38 million b/d in outbound volumes.

A steep decline in crude prices in recent weeks has narrowed the Brent-WTI spread, a rough estimate of competitiveness of US crude abroad, to under $5/b to date in February. The spread was last weaker in August 2019, the last month US exports averaged below 3 million b/d, according to EIA data.

USGC diesel stocks hit 29-month high

US gasoline stocks fell to 256.39 million barrels last week, a 2.69 million-barrel decline from the week prior, while total distillate stocks dipped 2.12 million barrels to 138.47 million barrels, EIA data showed.

USGC combined low and ultra-low sulfur diesel stocks edged up 860,000 barrels to 43.17 million barrels, the highest since September 2017.

USGC refiners could see some distillate supply pressure ease with the opening of exports outlets. The arbitrage incentive for exporting USGC diesel to Northwest Europe jumped to the widest since fall 2018 earlier this month, and to date in February has averaged at around 43 cents/gal. The arbitrage incentive was last open on a monthly basis in May 2019.

On the US Atlantic Coast, gasoline stocks moved 1.35 million barrels lower to 65.15 million barrels. The counter-seasonal draw put inventories more than 7% behind the five-year average, out from 4.8% the week prior.