US crude stocks expected lower as Hurricane Zeta shuts US Gulf production

New York — US oil inventories likely declined in the week ended Oct. 30 as Hurricane Zeta shut in Gulf of Mexico production, an S&P Global Platts analysis showed Nov. 2.

Commercial crude stocks likely declined around 600,000 barrels last week to 491.8 million barrels, analysts surveyed by Platts said. The draw would leave stocks around 8.4% above the five-year average of US Energy Information Administration data, the narrowest surplus since the week ended April 10.

The draw comes as Gulf of Mexico operators shut in production ahead of Hurricane Zeta, which made landfall on the Louisiana coast Oct. 28.

At peak on Oct. 28, the Category 2 storm caused 85% of US Gulf crude to shut, as well as 58% of the natural gas supplies. Producers have been quickly able to redeploy evacuated personnel, and as of midday Nov. 2 just 518,441 b/d of crude and 431.48 MMcf/d of natural gas production remained offline, representing 28% and 16% of total Gulf output, respectively.

US crude production fell to 9.9 million b/d in the week ended Oct. 16 in the wake of Hurricane Delta, which took more than 92% of Gulf crude output offline, but output quickly rebounded to 11.1 million b/d in the following week.

Crude exports slide

US crude exports averaged 3.11 million b/d last week, according to data from cFlow, Platts trade-flow software, a 350,000 b/d decline from an EIA-reported 3.46 million b/d the week prior.

While Hurricane Zeta likely delayed some shipments slated for loading last week, US exports continue to face headwinds from weakened arbitrages.

Platts' US Gulf waterborne crude benchmark Americas GulfCoast Select averaged a 92 cent/b discount to the Dated Brent strip over the 15- to 45-day forward-loading window in October. Last year, FOB US Gulf Coast WTI cargoes, a similar proxy predating the benchmark, averaged a $2.22/b discount to the Dated Brent strip in October.

Exports to Asia have seen similar headwinds. The arbitrage incentive for WTI MEH delivered in Northeast Asia versus ESPO averaged 85 cents/b in October, 57 cents/b weaker than Bonny Light and more than $1/b below Murban, S&P Global Platts Analytics data shows.

Storm impacts refining

Nationwide refinery utilization is expected to have declined around 0.2 percentage point last week to around 74.4% of total capacity, analysts said, leaving run rates more than 15% behind the five-year average.

Hurricane Zeta also caused power disruptions at Shell's 227,400 b/d Norco Refinery and PBF Energy's 190,000 b/d Chalmette Refinery. While damage to the facilities was minor, the outages added headwinds to an already turnaround-hampered refinery complex.

Approximately 5.15 million b/d of crude distillation capacity was offline last week, according to Platts Analytics data, up from 5.06 million b/d the week prior.

US Gulf Coast cracking margins for WTI MEH averaged $4.99/b in the five days ended Oct. 30, down compared to an October to-date average of $5.60/b, Platts Analytics data shows.

Weakened gasoline cracks are a main contributor of the recent decline in margins. The USGC unleaded 87 crack against WTI MEH averaged $5.56/b last week, compared to an October average of around $7.62/b. In contrast, ULSD crack against WTI MEH climbed to $7.18/b last week, up compared to an October average of $6.47/b.

Total gasoline inventories are expected to have declined around 1.1 million barrels to 225 million barrels, analysts said, while distillate stocks are expected 2.4 million barrels lower at around 153.8 million barrels.