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Analysis: US crude stocks rise as export slowdown pushes barrels to storage

Highlights

Crude storage expands 7.46 million barrels

Exports fall to 13-week low at 2.97 million b/d

Bayway outage could stress USAC gasoline stocks

New York — US crude stocks climbed for a third consecutive week last week as production ticked higher and exports slowed, US Energy Information Administration data showed Wednesday.

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Commercial crude inventories increased 7.46 million barrels to 442.47 million barrels during the week ended February 7, EIA said. Crude stocks gained ground against the five-year average for the first time in five weeks, but inventories were still 1.5% behind the average last week.

Stocks had steadily declined relative to historic levels since late December, when they were 0.6% above average, to 2.3% below average during the week ended January 31.

The latest build was concentrated on the US Gulf Coast, where stocks increased 2.74 million barrels to 229.26 million barrels, but considerable builds were also seen at NYMEX delivery point of Cushing Oklahoma, which increased 1.67 million barrels, and on the US Atlantic Coast, where stocks were up 1.37 million barrels form the week prior.

The Cushing build nearly halved the deficit to year-ago levels to 7.8% from 13.9% the week prior.

An uptick in production coupled with lower exports contributed to rising storage levels. Total US crude output ticked up 100,000 b/d back to an all-time high of 13 million b/d last week, while exports slipped 443,000 b/d to a 13-week low of 2.97 million b/d. Weekly US crude exports have not fallen under 3 million b/d mark since early November.

But the build was tempered somewhat by strong refiner demand. Total refinery utilization rates were at 88% of total capacity last week, up 0.6 point from the week prior, and total net crude inputs increased 50,000 b/d to 16.02 million b/d. Net crude inputs were 1.6% stronger than during the same period last year, the first time they have moved above year-ago levels since early August.

ASIA EXPORTS DIP

Crude exports to Asia were down roughly 21% last week at 7.9 million barrels, while trans-Atlantic volumes to Europe slipped nearly 40% to 5.9 million barrels, according to data from cFlow, Platts trade flow software.

Beijing announced last week that it would halve the tariff on US crude imports to 2.5% as of February 14, paving the way for a potential increase in US crude purchases. China was the largest Asian buyer of US crude in 2018, but trade has all but dried up since October 2019 following the imposition of a 5% tariff the month prior.

Platts has assessed WTI MEH delivered into North Asia at an average 68 cent/b discount to ESPO to date in February.

But China will likely struggle to raise crude purchases in the near term due significantly dampened energy demand resulting from the coronavirus outbreak. Weaker demand in Asia has already prompted several Middle Eastern producers to divert some of their barrels to the West, especially to European refiners, sources told Platts last week.

The emergence of an extended contango structure in the WTI futures curve could also begin to incentive storage, adding headwinds to US exports. NYMEX WTI futures were in contango through July 2021 as of Wednesday.

BAYWAY OUTAGE COULD CUT USAC GASOLINE STOCKS

Total gasoline stocks declined 100,000 barrels to 261.05 million barrels, extending a counter-seasonal draw for a second week, while distillate inventories moved 2.01 million barrels lower to 141.22 million barrels.

USAC gasoline inventories fell further behind the five-year average last week, despite increasing 370,000 barrels last week. Regional stocks could see further pressure in coming week amid an extended shutdown of the 145,000 b/d fluid catalytic cracking unit at Phillips 66's Bayway refinery in Linden, New Jersey.

The gasoline-producing unit will remain offline for 30 days for repairs after a leak forced an unplanned shutdown February 6.

ICE RBOB cracks against Brent in New York Harbor opened to around 16 cents/gal following reports of the outage, more than 10 cents/b stronger than year-ago levels.