Analysis: US crude build likely extends, but slows amid production cuts

New York — US crude inventories are expected to extend their run higher last week, but at a slower pace than recent weeks amid a further decline in crude output, an S&P Global Platts analysis showed Monday.

Commercial crude stocks are expected to climb 7.1 million barrels to around 534.7 million barrels during the week ended May 1, analysts surveyed by Platts said.

The expected uptick would extend the US crude build for a 15th consecutive week, the longest run since early 2015, and would put stocks nearly 12% above the five-year average of US Energy Information Administration data.

US crude inventories have ballooned nearly 80 million barrels since late-March, but the rate of build has slowed in recent weeks, suggesting crude production may be declining faster than reported in EIA weekly estimates, Price Futures Group senior market analysts Phil Flynn said.

"Even though the weekly number is around 12 million, it's probably not that high," Flynn said. "My assumption is that the weekly number will be adjusted down dramatically in the monthly release."

Total US crude production averaged at 12.1 million b/d during the week ended April 24, EIA weekly data showed, down roughly 1 million b/d from all-time high in mid-March.

EIA's weekly estimates are routinely revised in the official monthly report. In its most recent February monthly report, crude production averaged at 12.8 million b/d, down from an average of over 13 million b/d in the aggregated weekly estimated data.

The gradual return of refinery demand has also blunted recent crude builds.

Total refinery utilization is expected to average 70.2% of total capacity last week, analysts said, up 0.6 percentage point from the week prior. The increase would put utilization 2.6 percentage points above its mid-April nadir at 67.6% capacity.

Still, refinery demand remains historically weak at more than 22% behind the five-year average.

Approximately 4.475 million b/d of crude distillation capacity was offline last week, according to S&P Global Platts Analytics data, down from 4.6 million b/d the week prior.

GASOLINE DRAWS LIKELY EXTEND AS DRIVERS RETURN

Nationwide gasoline inventories are expected to extend their decline last week as more states relaxed their COVID-19 restrictions on non-essential work and travel.

Gasoline storages likely dipped 400,000 barrels to around 259.2 million barrels last week, analysts said. This is a notable decline from a surprise 3.7 million barrel-draw reported by EIA during the week prior. This could be the result of volumes moving from bulk to retail terminals as downstream operators prepare for a coming wave of demand, according to Platts Analytics.

Roughly 35% of gasoline used is driving to and from work. So as US workers trickle back to their jobs, May gasoline demand is expected to increase by 1.234 million b/d over April, Platts Analytics forecasts.

Platts Analytics said in a recent note it expects re-opening orders will account for roughly 70% of the forecast monthly increase in gasoline demand, with the remaining roughly 30% to "occur derivatively from re-opening or simply because car drivers, out of a reduced level of fear or bored or cabin fever, wish to get out."

In contrast, distillate inventories likely continued to build last week, climbing 3.5 million barrels to around 145.5 million barrels, analysts said. The expected build would put stocks 7.4% ahead of the five-year average, the widest surplus since August 2017.