US oil inventories expected lower amid lingering impact of Hurricane Ida

US oil inventories likely declined in the week ended Sept. 10, analysts surveyed by S&P Global Platts said Sept. 13, amid lingering disruptions to both US Gulf Coast production and refining capacity in the wake of Hurricane Ida.

Total commercial crude stocks are expected to have declined 3.5 million barrels to around 420.4 million barrels, analysts said. The draw would put inventories at their lowest since September 2019, and leave them 6.8% behind the five-year average of US Energy Information Administration data.

Expectations of lower crude stocks come as offshore operators struggle to restart Gulf of Mexico production taken offline by Ida, which made landfall as a Category 4 hurricane near Port Fourchon, Louisiana Aug. 29.

As of Sept. 10, the final day of the inventory reporting period, 1.207 million b/d, or 66.36%, of US Gulf of Mexico crude oil production remained offline, according to the US Bureau of Safety and Environmental Enforcement. BSEE reports as of Sept. 13 show 793,522 b/d of output remains shut in, meaning that to date Ida has kept more than 26 million barrels of crude in the ground over the past 18 days.

At peak on Aug. 29, nearly 96% of Gulf crude output was offline, contributing to the EIA showing total US output down 1.5 million b/d at 10 million b/d in the week ended Sept. 3 -- the largest-ever outright slide in weekly US crude production.

Against this backdrop of lingering offshore outages, some Louisiana refineries are returning to normal operations. ExxonMobil said its Baton Rouge plant restored normal operations on Sept. 9, and Marathon Petroleum said Sept. 10 that its 578,000 b/d refinery in Garyville had returned to service after having been shut down due to lack of power.

Analysts expect nationwide refinery utilization to average 83.4% of capacity, up 1.5 percentage point from the week prior. At that level refinery runs would be nearly 4% behind average for this time of year.

But despite the weak utilization rates, US Gulf Coast cracking margins for WTI MEH dropped to $16.07/b for the week ended Sept. 10, from the $16.97/b for the week ended Sept. 3, according to S&P Global Platts Analytics data. The weakened margins are due in part to headwinds from a steep rise in the price of natural gas, used as a power source for many refineries. BSEE data shows that still more than 75% of US Gulf natural gas output remains shut in following Ida.

The price of Henry Hub gas averaged $5.04/MMBtu for the week ended Sept. 10, the highest price since Feb. 14, during the big freeze which enveloped Texas, when it reached $4.9850/MMBtu, according to S&P Global Platts price assessments.

Platts Analytics data shows the variable cost component of USGC WTI MEH cracking margins -- which includes fuel costs -- rose to average $2.09/b for the week ended Sept. 10 compared with $1.95/b for the previous week.

GASOLINE STOCKS

Nationwide gasoline stocks likely declined 2.2 million barrels to 217.8 million barrels, analysts said, leaving them 6.4% below the five-year average and at their lowest since November 2019. Meanwhile distillate stocks are expected to have come down 2 million barrels to 131.6 million barrels.

US Atlantic Coast gasoline stocks could see some relief following the resumption of flows along the Colonial Pipeline. Regional stocks saw their largest draw since mid-May and fell 14.5% below average during the week ended Sept. 3 after Colonial Pipeline preemptively shuttered its Line 1 and 2 systems for several days as Ida passed over. The pipelines are key refined product arteries that provide about 45% of all the gasoline and diesel fuel consumed on the East Coast.

Apple Mobility data show US driving activity averaged 152.4% of the index's January 2020 baseline last week, down around 3.5 percentage points from the week prior and the lowest since the week ended June 4. The US Labor Day holiday, which fell within the reporting window, typically marks the end of the summer driving season and portends lower gasoline demand heading into fall.

However this downward trend in holiday driving demand may be offset in part by an increase in commuter demand as COVID-19 infection rates decline and offices begin to open. Upwards of 300,000 New York City municipal workers are expected to return to their offices beginning Sept. 13, and on that same day the New York City school district, the nation's largest, will start the school year with mandatory in person classroom attendance.