By S&P Global Platts Oil Futures Editor Geoffrey Craig
Tightening U.S. crude oil inventories have been supportive for oil futures, but short-term dynamics continue to be dominated by moves in equities and currencies, with traders fixated on economic and political stories, according to an S&P Global Platts preview of this week’s pending U.S. Energy Information Administration (EIA) oil stocks data.
Survey of Analysts Results:
(The below may be attributed to the S&P Global Platts survey of analysts)
- Crude oil stocks expected to rise 2.5 million barrels
- Refinery utilization expected to be unchanged
- Gasoline stocks expected to fall 500,000 barrels
- Distillate stocks expected to drop 1.6 million barrels
S&P Global Platts Analysis:
(The below may be quoted in part or full, with attribution to S&P Global Platts Oil Futures Editor Geoffrey Craig)
NYMEX crude oil futures settled Monday at $62.57 per barrel (/b) roughly midway between the contract's three-year high in late January above $66/b and subsequent low in mid-February near $58/b.
That push-and-pull has been dictated by the daily news cycle, most recently centering on talk of a trade war following President Donald Trump's announcement of new tariffs on imports of aluminum and steel.
It may take time before the oil market's attention fully returns to fundamentals, which have provided mixed signals of late.
U.S. crude inventories have nearly erased a surplus to the five-year average, a bullish catalyst, though storage remains high on an absolute basis.
Further, trade flows have adjusted to push more crude away from the U.S. and into the global market, a development that could drag oil prices lower unless demand can grow aggressively.
Analysts surveyed Monday by S&P Global Platts expect U.S. crude stocks rose 2.5 million last week. For the same period from 2013 through 2017, inventories increased by 4.5 million barrels on average.
Inventories have built four of the last five weeks, which is typical for this time of year as winter maintenance reduces refinery demand.
But the size of these builds has been smaller-than-normal, allowing for the surplus against the five-year average to keep falling.
Crude stocks sat less than 1% above the five-year average the week ending February 23, down from 25% in mid-September and 37% a year ago.
A similar tightening has occurred in Cushing, Oklahoma -- delivery point for the NYMEX crude contract -- where stocks have fallen 10 straight weeks and 15 of the last 16 weeks.
At 28.785 million barrels, the amount of crude in storage in Cushing is at its lowest point since December 2014.
Threat of trade war
U.S. crude inventories began to draw in September, igniting a rally that accelerated in January on a bullish outlook for the global economy.
But as quickly as that euphoria materialized, the mood soured on the threat of rising inflation and then the potential for slower economic growth because of tit-for-tat retaliation against tariffs.
Further, traders have grappled with other aspects of U.S. inventory data that paint a less bullish picture than headline figures suggest.
Stocks have fallen relative to the five-year average, but that period encompasses the massive builds that began in 2015 and peaked in March 2017 when inventories hit a record-high 535 million barrels.
Inventories remain high on an absolute basis. For example, compared with the same period in 2014, stocks equal a surplus of 92.4 million barrels.
Returning to the pre-2015 levels could prove difficult if U.S. production continues to grow. Output averaged 10.283 million b/d the week ending February 23, an all-time high, according to Energy Information Administration weekly estimates that go back to 1983.
Net imports falling
One reason why U.S. inventories have fallen -- despite rising U.S. production -- has been the combination of greater US exports and fewer imports.
Crude imports minus exports -- or "net imports" -- dropped in September to 5.803 million barrels per day (b/d), down from 7.1 million b/d on average from January through August 2017, according to EIA data.
That shift followed a widening of the ICE Brent/West Texas Intermediate (WTI) spread which encouraged U.S. exports and discourages imports.
Net imports have averaged 6.1 million b/d over the last five months, more than 1.1 million b/d less than the year prior.
That year-on-year figure represents additional barrels that have been pushed away from the US and into Europe and Asia.
In this environment, OPEC supply cuts have been a critical element, but create downside risk if producer discipline starts to waver.
The other piece of the puzzle is whether global demand can grow by enough to absorb U.S. shale production.
With that in mind, the implications of a potential trade war on oil price go beyond short-term dynamics.
Any slowdown in the global economy as a result of trade barriers would negatively impact oil demand, and could tilt the balance in favor of oversupply this year, especially if U.S. production keeps climbing.
Product draws expected
The eventual uptick in seasonal refinery demand when planned winter repairs are finished and the summer driving season approaches will help take barrels off the market.
Refinery utilization sunk to 87.8% of capacity the week ending February 23, the lowest level since October. Analysts expect the utilization rate was unchanged last week at 87.8%, versus 85.9% a year ago.
Gasoline stocks were expected to have declined by 500,000 barrels, which would fall short of the 2.7-million barrel draw seen on average from 2013-17 for the same period.
Analysts were looking for distillate stocks to have fallen by 1.6 million barrels. The five-year average shows a draw of 737,000 barrels.
Global, Americas, Asia: Kathleen Tanzy, + 1 917 331 4607, firstname.lastname@example.org.
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S&P Global Platts Media Contact update
Americas: Kathleen Tanzy, + 1 917 331 4607, email@example.com
EMEA and Asia: Alex Brog, +44 20 7176 7645, firstname.lastname@example.org and Arnaud Humblot, +44 20 7176 6685, email@example.com
About S&P Global Platts
At S&P Global Platts, we provide the insights; you make better informed trading and business decisions with confidence. We're the leading independent provider of information and benchmark prices for the commodities and energy markets. Customers in over 150 countries look to our expertise in news, pricing and analytics to deliver greater transparency and efficiency to markets. S&P Global Platts coverage includes oil and gas, power, petrochemicals, metals, agriculture and shipping.
S&P Global Platts is a division of S&P Global (NYSE: SPGI), which provides essential intelligence for individuals, companies and governments to make decisions with confidence. For more information, visit https://www.spglobal.com/platts/en
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