US crude stocks expected lower on storm-driven production decline

New York — US crude inventories are expected to have fallen last week amid weather-related Gulf of Mexico production losses and a drop in imports, an S&P Global Platts analysis showed June 15.

Inventories likely fell by 3.5 million barrels to roughly 535 million barrels, based on the most recent US Energy Information Administration data. Still, that would leave stocks at around a 13.5% surplus to the five-year average.

Inventories have climbed this year because of low demand caused by the coronavirus pandemic. US Gulf Coast inventories at 303.7 million barrels the week ending June 5 were 27% above the five-year average, EIA data showed.

Offshore platforms were in the process of returning last week after shutting down ahead of Tropical Storm Cristobal, which made landfall on the Louisiana Gulf coast June 6. At its peak on June 7, Gulf of Mexico operators had reduced output by 636,000 b/d. By June 12, just 120,079 b/d of crude output remained down, according to the US Bureau of Safety and Environmental Enforcement.

Crude imports were also likely lower last week, which would help draw down crude stocks. Kpler vessel tracking software shows a total of 23.6 million barrels of waterborne crude imported into the US last week, down roughly 1 million barrels from the prior week.

Refinery runs strengthen

Also, refinery utilization is expected to have climbed last week, ticking up 1.3 percentage points to 74.4% of capacity, analysts said. Refiners began slashing runs in mid-February because of low demand, especially for gasoline, as the coronavirus pandemic closed businesses and kept drivers at home.

By the week ending May 8, refiners had reduced crude runs by 3.83 million b/d to 12.4 million b/d, EIA data shows. However, refiners have since lifted crude runs by 1.1 million b/d as states have started to lift business and travel restrictions.

Any boost in refinery runs would help to reduce crude inventories, however, US crude exports are expected to remain depressed. Buyers overseas are expected to turn to crude in floating storage before fixing fresh shipments from the US.

Roughly 175 million barrels of crude is currently sitting in floating storage, according to S&P Global Platts Analytics.

US waterborne exports averaged 2.35 million b/d last week, data from cFlow, Platts trade-flow software, showed, up from 2.23 million b/d the week ending June 5 but down from the 3.5 million b/d level seen in early May.

Diesel surplus grows

With some lockdown restrictions being lifted, inventories of gasoline are expected to have fallen last week by 2.2 million barrels, according to analysts. However, distillate stocks are expected to have risen by 3.1 million barrels, as the travel restrictions primarily impacted gasoline consumption, not industrial diesel demand.

US distillate stocks have risen 53.58 million barrels since the end of March to 175.83 million barrels, putting stocks at a nearly 30% surplus to the five-year average, EIA data shows.

USGC stocks have been driven higher by a drop in export demand to the Latin America and the Caribbean, where countries have also imposed restrictions due to the coronavirus.

However, exports have edged higher the past two weeks. Distillate exports nearly doubled to 1.4 million b/d the week ending June 5, EIA data showed. Kpler data shows refined products exports slipping for the week ending June 12 but remaining above the lows seen in mid-May.