New York — US crude supply is expected to extend its run higher last week, but builds were likely tempered by upward trending refinery demand and steady exports, an S&P Global Platts analysis showed Monday.
Receive daily email alerts, subscriber notes & personalize your experience.Register Now
Commercial crude inventories likely climbed 4.8 million barrels to 537 million barrels during the week ended May 8, analysts surveyed by Platts said Monday, pushing stockpiles to 12.6% above the five-year average of US Energy Information Administration data.
The forecast build for last week marks a slight uptick from an EIA-reported 4.59 million-barrel climb the week prior but is still a notable deceleration in the pace of builds compared to April, when stockpiles were surging around 14 million barrels per week.
Falling US production levels, which have declined by 1.2 million b/d to average 11.9 million b/d in the week ended May 1, and upward trending refinery demand have contributed to the slowing build.
A steady stream of producers announcing output cuts is likely to see US crude output continue to fall this month.
In the lower 48 states, around 1.7 million b/d of shut-ins have been announced as of last Friday, according to S&P Global Platts Analytics. The large gap between announced cuts and the weekly estimates suggests EIA data is lagging actual output declines.
While producers in the US and abroad have worked to narrow the super contango in WTI futures seen in late April, economics continue to strongly favor storage for traders able to secure tank space.
Sixth-month WTI averaged at an average premium of $6.50/b to the front-month last week, and the year-ahead contract averaged at a $9.50/b contango. In the second half of April, the one-year contango averaged at around $17/b.
Total refinery utilization is expected to climb for a fourth straight week to around 71.3% of capacity last week, analysts said, up 0.8 percentage point from the week prior. Still, utilization remains more than 21% behind the five-year average for this time of year.
Gasoline draw likely extends
US refiners are seeing an increase in gasoline demand as states begin to reopen services following coronavirus-related shutdowns, but need to work through high crude and product stocks before raising utilization.
Many states began lifting restrictions on non-essential travel and trade May 1. Roughly 35% of gasoline used is driving to and from work, so as US workers trickle back to their jobs, May gasoline demand is expected to increase by 1.2 million b/d over April, Platts Analytics forecasts.
But lingering, widespread unemployment could pose downside risks to these forecasts. Total US non-farm payrolls dropped by 20.5 million in April, pushing the nationwide unemployment rate to a post-World War II record-high of 14.7%, the US Labor Department said Friday.
Gasoline inventories are expected to draw for a third week last week, dropping 2.5 million b/d to around 253.9 million b/d, analysts said. Stocks would remain ample, however, at around 9% above the five-year average.
Tightened inventories and rising demand has boosted RBOB cracks in recent weeks. The ICE NYH RBOB crack versus Brent averaged at around $8.50/b last week, the strongest since early March. RBOB cracks, which were negative as recently as April 10, have rebounded to roughly par with year-ago levels as of late last week.
But as the gasoline outlook has improved, distillate demand has come under pressure, pushing barrels into storage and weighing on crack spreads.
Total distillate stocks are expected up 4.1 million barrels last week at around 155.6 million barrels, extending a counter-seasonal build for a sixth straight week.
Slowing economic activity due to pandemic lockdowns has weighed on diesel demand, contributing to the inventory build. But the collapse in air travel in recent weeks has forced refiners to head off a jet fuel glut by blending it into their distillate pool, further padding inventories.
In contrast to RBOB, ICE NYH heating oil cracks against Brent have steadily weakened recently, averaging at around $8/b last week compared to $9.80 the week prior and nearly $13/b in mid-April.