Analysis: US crude stocks expected higher as refinery demand holds near 12-year lows

New York — US crude stocks are expected to resume their march higher last week amid still-weak refinery demand, but strong exports are likely to blunt builds, an S&P Global Platts analysis showed Monday.

Commercial crude stocks likely climbed 2.4 million to around 533.9 million barrels during the week ended May 15, analysts surveyed by Platts said. The build would push stocks to their highest since March 2017 and put them 11.7% above the five-year average of US Energy Information Administration data.

The build comes as refinery demand lingers near 12-year lows. Total utilization is expected to edge 0.5 percentage point higher to 68.4% of total capacity last week, putting run rates roughly 24% behind the five year average for this time of year.

Refinery utilization held mostly below 70% of capacity since early April, levels that were previously seen only during times of extreme events such as major hurricanes and other natural disasters. Even then, the drop and recovery in utilization was typically swift, making the downturns one or two weeks in duration.

Declining refinery margins may present a downside risk to the outlook for improved utilization rates. Platts WTI MEH cracking margins on the US Gulf Coast again declined last week, falling to $2.74/b from $2.84/b the week prior, according to S&P Global Platts Analytics margin data.

Refinery utilization unexpected dipped during the week ended May 8 amid a weakening of margins.

CRUDE EXPORTS GROW

US crude exports are expected to reach 4.06 million b/d last week, according to data from cFlow, Platts trade flow software, driven by resurgent demand for US crude in Asia and Europe. The cFlow forecast represents a 540,000 b/d weekly increase in exports from 3.53 million b/d reported by EIA for the week prior and would be the highest weekly export figure since the week ended March 13.

Around 3.2 million barrels of US crude flowed toward China last week, bringing running total for the month of May up to nearly 9.1 million barrels. US exports to China this month are on pace to be the highest ever on record.

In just two weeks, volumes for the month are already the highest since July 2018 and stand at 62% of March 2018 levels, when China took 14.55 million US barrels.

Crude oil throughput at China's domestic refineries edged up 0.8% year on year to 13.16 million b/d, or 53.85 million mt, in April, posting the first uptick since the coronavirus outbreak, data released Friday by China's National Bureau of Statistics showed. Throughputs are expected to continue to trend higher in May, as companies make room for excess crude purchased at ultra-low prices in March, analysts told Platts.

Transatlantic crude demand was also higher last week, with US shipments to Europe hitting a three-week high of 6.44 million barrels, according to cFlow.

GASOLINE DRAWS EXTEND

Total gasoline inventories are expected to extend their decline for a fourth consecutive week last week, as driving demand continues to climb amid relaxed COVID-19 restrictions. Nationwide stockpiles likely dipped 3.5 million barrels to around 249.4 million barrels analysts said, putting them 7% behind the five-year average: the narrowest surplus since late March.

Gasoline demand has accelerated in recent weeks as state and local government have relaxed restrictions on non-essential travel and trade. EIA product supplied for gasoline, a proxy for demand, was up 46% from its early April nadir as during the week ended May 8 and was just 24% behind its mid-March peak.

While gasoline demand is likely to continue to rise in coming weeks, an exceptionally high unemployment rate is likely to keep demand from reaching pre-pandemic levels for some time.

Distillate stockpiles are expected to climb 3.2 million barrels to around 158.2 million barrels, analysts said.