NEW YORK , Nov. 12 2018 — US crude supply likely expanded last week as strong domestic production outpaced gains in refinery runs, an S&P Global Platts survey of analysts showed on Monday.
- Commercial crude likely added 2.33 million barrels last week
- Surging production, capacity constraints outpacing refinery runs
- Strong Bakken margins could weigh on distillate production
Commercial crude storage is expected to have added 2.33 million barrels during the week ended November 9, according to analysts surveyed by S&P Global Platts. The expected build would mark the eighth consecutive week of increases -- the longest upward run since early 2017 -- and bring inventories to around 459 million barrels, roughly 2.92% above the five-year average of US Energy Information Administration-reported data.
Refinery utilization also likely increased last week, with analysts expecting a 0.83 percentage point increase in refinery runs to around 90.83% of total capacity. Refiners have come back from turnaround season faster than usual this year, and run rates are historically very strong. The expected increase last week would bring utilization 1.08% above the EIA-reported five-year average.
Historically, seasonal refinery maintenance peaks in mid-October, and utilization rates steadily increase ahead of the winter months. Over the past five years, utilization rates on average have not crossed 90% of capacity until mid-November. This year, run rates averaged at 90% of total capacity during the final days of October.
However, while operators have managed to hold up utilization rates this fall, record-setting production levels have overwhelmed the turnaround-hampered refinery complex. Crude output reached a record high of 11.6 million b/d during the week ended November 2, EIA data showed. Last week, the EIA revised up its forecast for US crude production in its latest Short-Term Energy Outlook, and now expects output to average at 10.9 million b/d in 2018 and to 12.1 million b/d in 2019.
Rising refinery utilization likely also failed to blunt product stock draws last week.
Gasoline stocks are expected to have dipped by around 894,000 barrels to roughly 227.127 million barrels, analysts said. The decline partially offset the EIA-reported 1.85 million-barrel build during the week prior, but inventories remain ample at more than 7.2% above the five-year EIA-reported average.
Analysts also expected a 2.7 million-barrel draw in distillate stocks, taking inventories to around 3.2% below the five-year average at 120.8 million barrels, the widest deficit to the five-year average since early September.
In recent weeks, strong Midwest and Gulf Coast cracking margins have likely increased the incentive for refiners to run US shale crudes. US Gulf Coast Bakken cracking netback margins were $22.78/b last week, compared with $12.12/b for WTI. USGC Bakken cracking margins were at a discount to WTI as recently as October 2.
The lighter shale crudes like Bakken produce a higher ratio of gasoline to distillates in Gulf Coast crackers, according to Turner, Mason & Co. yield formulas. This in part could be behind surging gasoline stocks, at least compared to the declines seen in distillates. USGC gasoline production was 13.4% above the five-year average at 2.59 million b/d during the week ended November 2, EIA data showed, while distillate output was only 7.2% above the five-year average at 2.91 million b/d.
EXPORTS DIP AS WTI CONTINUES TO STRUGGLE IN ASIA
Total US export activity last week averaged around 1.96 million b/d, data from cFlow, S&P Global Platts trade-flow software, showed, an 18.5% decline from the EIA-reported level of 2.4 million b/d during the week prior.
Crude exports to Asia edged higher by 765,000 barrels to 7.06 million barrels last week, cFlow data showed. The uptick was predicated mainly upon 1.52 million barrels sailing for India, up from zero during the week prior. India was among the eight nations that received waivers from Washington last week allowing for the continued import of Iranian crude despite US sanctions entering force on Monday. Exports to China also resumed last week after a four-week hiatus, with 534,000 barrels departing US ports.
However, but an upward trend in Asia-bound volumes belied a sharp downturn in exports to East Asia. Exports to Singapore fell to zero from 553,000 barrels during the week prior, and South Korea-bound exports plunged by more than half, falling 1.95 million barrels to 1.79 million barrels, according to cFlow data.
The economics for US crude in Asia have become less favorable in November. Platts CFR North Asia assessments show WTI delivered into North Asia at an average $1.74/b premium compared with North Sea Forties and at an 88 cent/b premium compared with Murban crude during the week ended November 9. During October, WTI was assessed at a slight 8.2 cents/b discount to Forties and a narrower 65 cents/b premium to Murban in North Asia.
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