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Strong US refinery demand contributes to counter-seasonal crude oil inventory draw

Highlights

Commercial crude stocks fall 5.4 million barrels

Refinery crude demand 2.6% above normal

USAC diesel stocks remain tight amid steep backwardation

  • Author
  • Chris van Moessner
  • Editor
  • Derek Sands
  • Commodity
  • Oil

Rising refinery demand contributed to a counter-seasonal draw in US crude stocks during the week-ended Nov. 11, US Energy Information Administration data showed Nov. 16.

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Total US commercial crude stocks declined 5.4 million barrels over the period to 435.36 million barrels, the EIA said. The draw put stockpiles 4.6% behind the five-year average for this time of year, opening the widest deficit to normal since late August.

Inventories at the NYMEX delivery hub of Cushing, Oklahoma, saw their biggest one-week decline since March, falling 1.62 million barrels to 25.62 million barrels.

A further 4.1 million barrels drained from the nation's Strategic Petroleum Reserve, leaving total US oil stocks at 827.47 million barrels – the lowest since March 2001.

The inventory draws, while counter-seasonal, was largely in line with recent market expectations, muting the market's price reaction. NYMEX December WTI settled down $1.33 at $85.59/b, and ICE January Brent fell $1.00 to $92.86/b.

Robust refinery demand contributed to the draws. Nationwide refinery utilization climbed for a third straight week, rising 0.8 percentage point to 92.9% of capacity, while refinery net crude inputs edged up to 16.15 million b/d, an eight-week high. At those levels, utilization and net crude demand were 5.4% and 2.6% above their respective five-year averages.

The return of capacity from turnaround has eroded US Gulf Coast refinery margins, but they remain still very healthy amid strong refinery product demand.

The USGC WTI MEH cracking margin averaged $24.46/b in the five days ended Nov. 10, S&P Global data showed, down compared with a November to-date average of $24.68/b.

But on the Atlantic Coast, margins have been supported by very tight distillate stocks. The USAC Bonny Light cracking margin climbed to $38.34/b in the week to Nov. 11, S&P Global data showed.

USAC diesel stocks climbed 610,000 barrels in the week to Nov. 11 to a seven-week high 24.19 million barrels, the EIA said. But regional stockpiles remain 41% below normal for this time of year. S&P Global data showed the Platts USAC ULSD crack versus Dated Brent averaged $99.38/b in the week ended Nov. 11, an increase of more than $10/b from October.

Steep backwardation in the NYMEX ULSD forward curve disincentivizes storage, contributing to these tight regional availabilities. The prompt NYMEX ULSD contract has maintained a more than 16 cent/gal premium to the second month contract to date in November, up sharply from a 1.3 cent/gal backwardation during the same period in 2021.

Nationwide distillate stocks climbed 1.12 million barrels to 107.38 million barrels, holding 14.4% behind average for this time of year.

Despite these tight supply dispositions, diesel exports remain relatively strong. The four-week moving average of exports was 1.19 million b/d, up around 13% from year-ago levels. This is due in large part to continued appetite for US barrels in Europe. US distillate flows to Europe are expected to reach 2.11 million barrels in November, according to commodity tracking firm Kpler data, up 57% from November 2021.