Analysis: US crude stocks extend run higher, testing storage limits

US crude inventories extended their race higher last week as refinery demand plunged and output showed little sign of slowing, an S&P Global Platts analysis showed Wednesday.

Total US crude inventories climbed 15 million barrels to 518.86 million barrels, US Energy Information Administration data showed Wednesday. The build pushed stocks 8.8% above the five-year average for this time of year to their highest since May 2017.

Inventories are Cushing, Oklahoma -- the delivery point of the NYMEX crude contract -- were up 4.78 million barrels last week at 59.74 million barrels, while US Gulf Coast stocks climbed 9.88 million barrels to 273.24 million barrels.

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Downward trending refinery demand continued to add upward pressure to crude stocks last week. Net crude inputs slipped 210,000 b/d to 12.46 million b/d last week, a fresh 12-year low, amid a 1.5 percentage point pull back in the nationwide utilization rate to 67.6% of total capacity.

But despite this pull back in refinery demand, US crude production was down just 100,000 b/d last week at 12.2 million b/d.

Over the past four weeks net crude inputs have fallen about 21% of 3.38 million b/d, but weekly production has declined around 6% over the same period, falling by 800,000 b/d. This dynamic has resulted in a more than 63 million-barrel surge in crude stocks that has pushed nationwide storage capacity to its limit.

Total US commercial crude storage is around 60% full as of last week, while tanks at Cushing stand at about 75% of their total working capacity, Platts analysis shows. Notably these figures account only for oil in tank, and do not factor in capacity that is already booked for future storage.

The inability for traders to find storage for prompt delivery pushed the NYMEX May WTI contract into negative territory on Monday.

US production is expected to decline in coming weeks as low prices force producers to shut-in wells. After plunging by 67 to 444 last week, the US oil rig count is down about 35% from mid-March, according to rig data provider Enverus.

But even if crude production shows meaningful declines in coming weeks, a flood of imports from Saudi Arabia is poised to keep inventories flush.

Saudi Aramco slashed its official selling price for US customers buying Arab Light in April to a $3.75/b discount to ASCI, compared with a 75 cent/b discount in May. The arbitrage incentive for Saudi Arab light in the US Gulf Coast versus Platts WTI MEH has averaged at $13.18/b to date in April, Platts Analytics data shows.

Currently there are at least 12 laden VLCCs expected to arrive in the USGC between April 24-May 21 after loading at Ras Tanura, according to S&P Global Platts analytics and cFlow, Platts trade flow software. It is unclear if all 12 tankers will be able to unload upon arrival due to storage constraints. Three Saudi Arabian-flagged VLCCs were observed on the USGC Tuesday morning, believed to be laden.

Aside from these shipments, US crude imports have all but dried up. Last week inbound volumes averaged at 4.94 million b/d, down 740,000 b/d from the week prior and the weakest since February 1992.

PRODUCT DEMAND SHOWS SIGNS OF LIFE

Total US product supplied climbed 306,000 b/d to 14.10 million b/d last week. The increase snapped six consecutive weeks of declines that had seen demand collapse 37% from early March amid widespread state and local stay-at-home orders.

Gasoline demand was up 230,000 b/d at 5.31 million b/d and distillate demand climbed 371,000 b/d to 3.13 million b/d. Gasoline demand was still down 45% from its mid-March high, but the uptick held inventories to a 1.02 million-barrel build last week, well under a 5.7 million-barrel build expected in a Platts Monday analysis. Still, gasoline inventories notched a fresh all-time high at 263.23 million barrels.

Distillate inventories jumped 7.88 million barrels to 136.88 million barrels, EIA said. Distillate stocks have swelled more than 14 million barrels so far this month, narrowing the deficit the to five year average to 0.8% from around 12% in late March.