Analysis: US crude draw likely extends on rising exports, refinery demand

US crude oil inventories likely declined during the week ended July 3 amid an expected uptick in refinery demand and rising exports, analysts surveyed by S&P Global Platts said July 6.

US commercial crude stockpiles likely dipped 3.7 million barrels to around 529.8 million barrels in the week ended July 3, as per the survey.

The second successive weekly draw would put inventories nearly 11 million barrels off of their all-time high hit in mid-June. However, since US Energy Information Administration data shows crude stocks typically draw around 6 million barrels this time of year, the forecast draw would expand the surplus to the five-year average to 15.8%, up from 15% the week prior.

US crude exports are forecast at 3.6 million b/d in the week ended July 3, data from cFlow, Platts tradeflow software showed, up significantly from an EIA-reported 3.1 million b/d the week prior.

A continued recovery in refinery demand likely contributed to the expected draw. Utilization rates are expected by analysts to hit 76.2% of capacity last week, up 0.7 percentage point from the week prior. The increase would mark an eighth straight week of rising utilization rate, but would still leave runs 19.5% behind the five-year average of EIA data.

Refiners have been wary of raising run rates too quickly in light of large refined product stockpiles and uncertain demand outlooks. Further blunting refiner demand last week was a resurgence in COVID-19 cases in several US states.

While margins have general improved in recent weeks, they remain very weak compared to last year. Most refined product cracks retreated last week, likely further blunting already low marginal refinery crude demand.

On the Atlantic Coast, the ICE NYH RBOB crack versus Brent fell to around $8.60/b, the weakest since early June and in from nearly $10/b the week prior.

During the same period last year, the ICE NYH RBOB crack averaged at nearly $14/b.

On the US Gulf Coast, the Platts unleaded 87 crack against WTI averaged at just shy of $8/b in the week ended July 3, down from $8.49/b the week prior and well under year-ago levels of nearly $19/b.

VIRUS SURGE COULD THREATEN RECOVERY

Total gasoline inventories were seen by analysts down 1.2 million barrels on the week at 255.3 million barrels, putting stockpiles at roughly 10% above the five-year average.

Gasoline demand, which fell sharply during widespread lockdowns earlier this year, has steadily recovered in recent weeks and is back to near year-ago levels in some high-demand gasoline states, including Texas and Florida.

But further demand recovery is likely to face headwinds as state and local governments are already tightening previously loosened restrictions on non-essential travel and trade in a bid to slow the rate of new cases.

A surge in coronavirus cases across the southern and western states pushed the number of new cases nationwide to a record high 56,567 on July 3, according to the New York Times data.

The majority of the growth in gasoline demand has been due to discretionary driving, according to Platts Analytics, and further significant gains will be predicated on a recovery in economic activity that spurs increased commuter demand.

Nationwide commuter gasoline demand was just 7% behind year-ago levels during the week ended June 26, according to Kayrros analytics data, up from a nadir of 45% behind year ago levels during the week ended April 3.

Still, the recent recovery in demand has been sufficient to push prompt NYMEX RBOB futures into backwardation last week for the first time since March.

Total distillate inventories are expected to dip 500,000 barrels to around 173.6 million barrels, analysts said, paring the nationwide surplus to the five-year average to around 25%, a six-week low.