ANALYSIS: US refined product stocks climb on stronger refinery runs, weaker demand

US refined product inventories were sharply higher in the week ended June 4, US Energy Information Administration data showed June 9, as strengthened refinery runs were met by tepid demand.

Total gasoline inventories climbed 7.05 million barrels in the week ended June 4 to 241.03 million barrels, EIA data showed, narrowing the deficit to the five-year average to 0.4% from more than 3% the week prior. It was the largest one-week build in gasoline stocks since the week ended April 3, 2020, when the nation faced widespread pandemic lockdowns.

Distillate stocks were also sharply higher, climbing 4.41 million barrels to 137.21 million barrels.

NYMEX July RBOB settled down 1.65 cents at $2.2025/gal and July ULSD finished 55 points lower at $2.1295/gal.

The gasoline build was concentrated along the high-demand US Atlantic Coast, with stocks there climbing 3.4 million barrels to 65.79 million barrels. Despite the build, which was the largest since the week ended Feb. 5, USAC inventories remain historically tight at around 3.8% behind the five-year average.

The remainder of the gasoline build was realized in the Midwest and US Gulf Coast, where inventories climbed 2.23 million barrels and 1.89 million barrels, respectively. The Midwest build left stocks around 8% behind the five-year average, the narrowest deficit to the mean since the week ended Jan. 29.

The USAC and Midwest regions also led the nationwide distillate stock build. USAC combined low and ultra-low sulfur diesel inventories were up 1.69 million barrels while Midwest stocks climbed 1.87 million barrels.

The refined product builds come amid a continued up trend in refinery runs. Total refinery utilization average 91.3%, up 2.6 points from the week prior and the highest since the week ended Jan. 10, 2020. Meanwhile total net crude inputs were up 330,000 b/d at 15.93 million b/d, the highest since Feb 2020. Refinery utilization is now solidly above the five-year average, however crude demand continues to hold below normal.

US refining margins were mixed for the week ended June 4, an S&P Global Platts analysis showed June 8. The broad trend across the country showed a softening in cracking margins as gasoline demand slipped and stocks grew while Midwest coking margins showed some strength as agricultural demand for diesel increased with the harvest.

In addition to rising production, product stocks saw upward pressure from a sharp pullback in demand. Weekly product supplied for all petroleum products, EIA's proxy for demand, averaged 17.71 million b/d, a decline of 7.5% from the week prior and a four-week low.

Demand was lower for all the major refined products. Implied gasoline demand was down around 7% at 8.48 million b/d, the lowest since the week ended March 12. Meanwhile distillate demand fell around 10.5% to 3.41 million b/d and was the lowest since the last week of December 2020. Jet fuel demand was down more than 28% on the week at 1.03 million b/d and was last lower in early March.

Apple Mobility data shows US driving activity edged lower in the week ended June 4 to around 151% of the January 2020 baseline, in from the record high 152% averaged during the week prior.

Still, the outlook for US product demand is strong. EIA, in its monthly Short-Term Energy Outlook released June 8, raised its forecast for US gasoline demand for a second month in a row. EIA now predicting drivers will consume 9.1 million b/d this summer, given stronger economic indictors.

That would put April-September 2021 demand 1.3 million b/d above summer 2020 levels but still more than 400,000 b/d below pre-pandemic levels seen in summer 2019.

The four-week moving average of implied gasoline demand averaged 9.08 million b/d in the week ended June 4, holding close to forecast levels despite sliding around 1% from the week prior.

Crude stock draws extend

Strong refinery crude demand contributed to a larger-than-expected 5.24 million-barrel draw down in US crude inventories, leaving them more than 4% behind the five-year average at 474.03 million barrels.

NYMEX July WTI settled down 9 cents at $69.96/b and ICE August Brent settled unchanged from the session prior at $72.22/b.

Crude inventories have now declined in five of the past six weeks, plunging more than 19 million barrels since late April.

The bulk of the draw was realized on the USGC, where crude stocks declined 6.79 million barrels to 258.02 million barrels.

Total crude exports averaged 2.93 million b/d, an increase of 390,000 b/d from the week prior, but this rise in outflows was more than offset by a 1 million b/d uptick in imports to 6.64 million b/d - a one-year high.

The bulk of these imports landed in the Midwest, where agricultural demand for diesel has boosted coking margins that have in turn pushed margins for WCS ex-Cushing to $17.07/b for the week ended June 4 from the $16.84/b the week earlier, according to S&P Global Platts Analytics data.