US crude build likely extends amid weak refinery runs despite export surge

New York — A surge in export activity likely held back an expected seasonal crude build last week, putting inventories further behind the historic norm, an S&P Global Platts analysis showed.

Commercial crude stocks likely added 3.5 million barrels to storage, putting stocks at around 446.8 million barrels during the week ended February 28, analysts surveyed by Platts said Monday.

An expected 0.8 percentage point drop in refinery utilization to 87.1% of total capacity likely contributed to the crude build. Utilization rates are expected to fall below the five-year average for the first time in four weeks.

Offline refinery capacity edged higher last week as a number of unplanned outages exacerbated a heavy slate of planed turnaround work. A total 3.23 million b/d of crude distillation capacity was offline last week, S&P Global Platts Analytics data showed, up from 3.2 million b/d the week prior. Offline distillation capacity was last higher in early November 2019.

The FCCU at LyondellBasell's 263,776 b/d Houston refinery was out of commission last week after being taken offline by a fire earlier in February. And problems continued to plague the restart of a FCCU at ExxonMobil's Baton Rouge, Louisiana, plant last week, which was hit by a fire February 12, according to market sources.

A fire was also reported at Citgo's 157,500 b/d refinery in Corpus Christi, Texas, last Monday, but the FCCU was already down for planned work.

Overall refinery turnarounds are expected to ease in March, though offline capacity is slated to pick up in certain regions. US Gulf Coast refinery outages are expected to average 806,000 b/d for the week ended March 6, compared with the 1.567 million b/d offline for the week ended February 28, according to forecasts from Platts Analytics. On the US West Coast, outages are expected to rise to 546,000 b/d for the week ended March 6, compared with the 467,000 b/d for the week ended February 28.

Crude inventories typically build as shoulder season refinery maintenance eats into demand, but a surge in crude exports held last week's expected build well under historic levels. On average, crude storages typically increase by more than 7 million barrels during the last week of February, according to US Energy Information Administration data. The relatively small expected build would leave stocks around 3% behind the five-year average of EIA data, the widest deficit since July 2018.

US crude exports were likely testing all-time highs last week at 4.37 million b/d, data from cFlow, Platts tradeflow software, showed.

The cFlow estimate marks a 710,000 b/d uptick from an EIA-reported 3.66 million b/d during the week prior. The cFlow estimate would put exports just 93,000 b/d shy of their EIA-reported all-time higher 4.46 million b/d in late December.

Notably, the exports lifted last week were likely booked back in mid- to late-January, when the Brent/WTI spread, an indicator of the competitiveness of US crude abroad, was at the widest since July at around $6.25/b. The spread sharply narrowed in February amid a steep decline in global crude prices, suggesting that exports are likely to fall back in coming weeks.

Product draws extend amid refinery slowdown

The slowdown in refinery utilization likely also contributed to a continued slide in refined product stocks last week.

Nationwide gasoline stocks likely fell 2.8 million barrels to around 253.59 million barrels last week, analysts said. The draw would narrow the gasoline supply overhang to 1.75% above the five-year average, the weakest surplus since late-October.

Distillate inventories are expected 2.4 million barrels lower last week at 136.1 million barrels, analysts said, putting inventories 5.7% behind the five-year average.

Any USGC distillate draw could be blunted by the closure of the waterborne export arbitrage last week. The arbitrage incentive for moving USGC ULSD to Northwest Europe averaged at around minus 13 cents/b, Platts Analytics data showed. The arbitrage incentive had been open by nearly $2/b earlier in February, but a nearly 40% uptick in the cost of transatlantic freight in recent weeks has since eroded the arb.