Analysis: US crude stocks decline amid lower production, rising exports

New York — US crude inventory draws extended during the week ended Aug. 7, amid a down turn in production and rising exports, US Energy Information Administration data showed Aug. 12.

Commercial crude inventories dipped 4.51 million barrels to 513.08 million barrels last week, EIA data showed, putting them 15% above the five-year average for this time of year.

The draw was realized mainly on the US Gulf Coast, where stocks fell 6.71 million barrels to 281.42 million barrels, but US Atlantic Coast inventories were also down 940,000 barrels on the week at 11.04 million barrels.

Midwest crude stocks, in contrast, jumped 2.17 million barrels to 142.39 million barrels, including a 1.34 million-barrel increase at the NYMEX delivery point of Cushing, Oklahoma.

Notably, the amount of crude stored at the nation's Strategic Petroleum Reserve dropped 2.24 million barrels to 653.9 million barrels. It was the largest one-week SPR draw since November 2017.

US crude production fell to 10.7 million b/d in the week ended Aug. 7, down 300,000 b/d from the week prior. Output was the lowest since the week ended June 12, when Gulf of Mexico operators shut in more than 34% of oil production ahead of Tropical Storm Cristobal.

A sustained recovery in US crude production is likely to see headwinds this year, even as oil demand rebounds amid easing coronavirus lockdowns.

While many large US producers are in the process of returning the bulk of production curtailed during the height of the spring lockdowns, many have said in their second-quarter earnings presentations that they would remain disciplined for the second half of the year and expect little change in spending until they are more certain of an economic recovery.

In its monthly Short Term Energy Outlook released Aug. 11, the EIA revised its 2020 forecast for US oil production to 11.26 million b/d, down 370,000 b/d from last month's outlook citing more extensive curtailments than previously estimated.

An uptick in crude exports further contributed to the USGC inventory draw. Outbound crude volumes averaged at 3.14 million b/d in the week ended Aug. 7, up 320,000 b/d from the week prior. The increase pushed the four-week moving average of exports above the 3 million b/d mark for the first time since the week ended May 29.

Refinery runs steady amid tepid demand, weak margins

Refinery utilization jumped 1.4 percentage points last week to 81% of capacity, the strongest utilization rate since the week ended March 27. But net crude inputs were up just 20,000 b/d at 14.66 million b/d. While inputs are up considerably from mid-April lows, refinery crude demand has languished at around 15% behind the five-year average since early July.

Refined product demand, though up sharply on the week remained well below typical summer levels. Total product supplied, a proxy for demand, averaged at 19.37 million b/d last week, up 1.46 million b/d from the week prior though still 7% behind the five-year average. Gasoline demand was up just 3% on the week at 8.88 million b/d and remains more than 10% behind year-ago levels.

Tepid product demand has weighed on margins, further incentivizing refinery caution on raising runs. US Gulf Coast cracking margins for WTI MEH averaged at $4.64/b in the week ended Aug. 7, down from a July average of $5.22/b.

Gasoline cracks are especially weak. Front-month ICE RBOB cracks against Brent in New York Harbor fell to $3.6/ gal last week, in sharply from $6.90/gal the week prior and the weakest since mid-April. Meanwhile, Platts USGC unleaded 87 cracks against WTI averaged at $5.99/b, in from $6.59/gal the week prior.

Total gasoline stocks moved 720,000 barrels lower to 247.08 million barrels during the week ended Aug. 7, EIA data showed. The modest draw put stockpiles 7.5% above the five-year average, up from 7.3% during the week prior.

Nationwide distillate stocks dipped 2.32 million barrels to 177.66 million barrels, snapping three consecutive weeks of builds.