US crude stocks expected lower amid export surge

New York — US crude inventories likely declined in the week ended June 26 amid stepped-up exports and rising refinery demand, an S&P Global Platts analysis showed June 29.

Commercial crude stocks are expected 2.7 million barrels lower on the week to around 538 million barrels, analyst surveyed by Platts said. The drawdown would snap three successive weekly builds that each pushed inventories to fresh all-time highs.

Refinery utilization is expected to tick up by 0.8 percentage point to around 75.4%, analysts said, putting run rates at the highest since the week ended April 3. While utilization would still be nearly 20% behind normal, the uptick would mark a seventh straight week of rising refinery demand.

But weakened margins in some areas could threaten the outlook for rising run rates. US Gulf Coast WTI MEH cracking margins averaged at $5.51/b in the week ended June 26, down 50 cents from the week prior. On the US Atlantic Coast, Bakken crude cracking margins were down 33 cents on the week at $4.02/b.

However, Midwest margins have seen support from strong product demand. Bakken cracking margins climbed 29 cents on the week to $8.19/b, and WTI Cushing cracking values were up 25 cents at $6.16/b.

Initial estimates for US crude exports last week rose to around 3.6 million b/d, according to cFlow, Platts trade-flow software, up from 3.16 million b/d reported by the US Energy Information Administration the week prior. If confirmed by EIA, it would mark the strongest weekly exports since the week ended March 20.

US crude exports are poised to recover from eight-month lows seen earlier in June amid cheaper VLCC freight and rising margins for US crude abroad.

The USGC-China VLCC rate was assessed at lump sum $6 million on June 26, with talk of a further drop in rates to come to start the week on June 29. Freight for the route averaged $12.78 million in March and $15.18 million in April of 2020.

There were 19 VLCCs reported on subjects for USGC-East voyages for loading in June 2020, up from the 13 reported in May, according to S&P Global Platts fixture logs. There were 14 VLCCs reported on subject for USGC-East voyages in June 2019.

Cracking margins for WTI MEH in northwest Europe climbed to $1.36/b last week, up from $1.14/b the week prior.

Gasoline draws likely extend

US gasoline inventory draws likely extended last week as nationwide demand continued to creep higher. Total inventories are expected 2.7 million barrels lower at around 252.6 million barrels. The draw would pare the surplus to the five-year average back to less than 9%, the smallest overhang since early May.

Total gasoline demand is expected to climb around 2% on the week, according to Platts Analytics data. The steady growth in gasoline demand in the face of still-high levels of unemployment suggests discretionary driving rather than work-related driving has largely been responsible for the recovery, Platts Analytics said.

But there are signs that consumers are increasingly staying home as coronavirus cases surge across several US states. Apple mobility data shows a nascent recovery in driving volume in Texas and Florida, where new cases are rapidly mounting, have shown signs of stalling.

Still, the upcoming 4th of July holiday is expected to provide a near-term bump in gasoline demand as drivers take advantage of lower prices. US automotive club AAA expects holiday weekend pump prices to be 50 cents/gal below those seen last year.