Analysis: US crude build slows as production cuts accelerate

New York — US crude oil inventories continued to march higher last week, but accelerating production cuts and strong exports held the build to the smallest since mid-March, US Energy Information Administration data showed Wednesday.

Commercial crude stocks climbed 4.59 million barrels during the week ended May 1 to 532.22 million barrels, EIA data showed. The build put inventories 11.4% above the five-year average, marking the widest supply surplus since December 2017.

Crude stockpiles at the NYMEX delivery point of Cushing , Oklahoma moved 2.07 million barrels higher to 65.45 million barrels, leaving tanks at 83% of working capacity, EIA said.

Meanwhile US Gulf Coast inventories were up 2.32 million barrels on the week at 282.67 million barrels, an all-time record high.

Total US crude production averaged at 11.9 million b/d during the week ended May 1, EIA data showed, a decline of 200,000 b/d from the week prior. After dropping by 600,000 b/d during the week ended April 3, production declines slowed to 100,000 b/d for most of April.

Outside of a one-week dip in mid-July, US crude output was last lower in February 2019.

Last week's production figure suggests that capex reductions and a sharp pull pack in drilling activity in recent weeks is now manifesting in accelerating output declines.

The total US oil and gas rig count has almost been halved since early March, in response to a steep decline in crude prices. As of the week ended April 29, the number of active rigs has fallen 48%, or 403, from 835 in the week ended March 11, rig data provider Enverus said.

At least 37 US-based oil companies have slashed capex guidance by an aggregate $38 billion, an average cut of 33%, as of Tuesday, S&P Global Platts Analytics data shows.

A 240,000 b/d uptick in crude exports further blunted the topline build. Outbound crude volumes averaged 3.55 million b/d last week, the highest since mid-March, as limited domestic storage continued to push barrels offshore.

Some 5.9 million barrels of US crude were exported to Latin America and the Caribbean last week, likely headed for major storage hubs in the region, data from cFlow, Platts trade flow software, showed.

Refinery demand inched higher last week, but remained historically very weak. Total utilization ticked 0.9 percentage point higher to 70.5% of capacity, but net crude inputs climbed just 220,000 b/d to 12.98 million b/d, leaving crude demand 21% behind normal for this time of year.

SAUDI CARGOES BOOST IMPORT TOTALS

Slowing US production was partially offset by an increase in imports, which climbed 410,000 b/d to 5.71 million b/d. Imports from Saudi Arabia surged 60% on the week to 580,000 b/d, as the first of a steady stream of vessels carrying April crude purchases arrived in US ports.

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 averaged at $10.56/b in April, Platts Analytics data shows. While this incentive has now plunged to $1.78/b to date in May, cFlow data shows at least 20 Saudi-laden VLCCs are due in the US within 30 days.

GASOLINE DRAWS EXTEND AS DRIVING DEMAND RETURNS

Total US gasoline inventories fell to 256.41 million barrels, a draw of 3.15 million barrels from the week prior, as driving demand surged amid a relaxing of stay-at-home orders.

Roughly 35% of gasoline used is for 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.

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Total gasoline supplied, a proxy for demand, jumped 800,000 b/d to 6.66 million b/d, EIA said. But a more than 35% decline in demand for jet fuel and propane and propylene, pushed total refined product demand down 410,000 b/d to 15.35 million b/d.

Total distillate fuel oil stocks surged 9.52 million barrels to 151.49 million barrels, putting them nearly 12% above the five-year average. While distillate demand has averaged around 900,000 b/d below March levels in recent weeks, an influx of jet fuel in to the distillate pool may account for some of the large increase seen last week.

Despite the sharp reduction in demand, jet fuel stocks were up just 50,000 barrels last week at 39.74 million barrels. On the US Atlantic Coast jet stocks were down 6.5% on the week at 10.19 million barrels. Meanwhile USAC distillate stockpiles surged nearly 10% to 48.81 million barrels.