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Analysis: Crude futures tumble as US supply continues to climb

Highlights

ICE Brent falls below $60/b for first time since January

Good WCS coking margins encourage imports

RBOB leads refined products lower despite stock draw

New York — Crude futures tumbled Wednesday following a US crude stock build reported by the US Energy Information Administration.

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NYMEX July crude settled $2.13 lower at $51.14/b. ICE August Brent settled $2.32 lower at $59.97/b. This is the first time prompt Brent has settled below $60/b since January 28.

Crude futures have been on a downward trend since late April on demand concerns stemming from the US-China trade war. Growing crude inventories and lower-than-expected refined products demand figures have added to those concerns, sending the prompt NYMEX WTI down roughly $15/b since April 23.

US crude inventories climbed 2.21 million barrels last week to 485.47 million barrels the week ending June 7, the EIA data showed. Stocks climbed 2.1 million barrels at Cushing, Oklahoma, the delivery point for the NYMEX WTI contract.

Crude futures were already lower ahead of the EIA report, having fallen on a 4.85 million barrel build in US inventories reported by the American Petroleum Institute Tuesday evening.

Still, the underlying EIA data did not appear as bearish as the headline stock build. Demand for crude was higher, as US refiners increased crude inputs by 126,000 b/d to 17.06 million b/d last week. Further, US crude production edged 100,000 b/d lower to 12.3 million b/d, while crude imports fell 316,000 b/d to 7.61 million b/d.

Nevertheless, crude bears could point to the fact that US crude inventories have climbed 46 million barrels since mid-March, and are now at roughly 8.4% above the five-year average. Likewise, crude production, while lower on the week, was up 1.4 million b/d from the same week in 2018.

The EIA expects US production growth to average at 1.4 million b/d for 2019, down from 1.6 million b/d in 2018. The EIA sees growth slowing to 940,000 b/d in 2020.

REFINED PRODUCTS DEMAND SLUGGISH

Refined products also fell Wednesday. NYMEX July ULSD settled 4.22 cents lower at $1.7799/gal, while NYMEX July RBOB settled 7.02 cents lower at $1.6861/gal.

Refined products demand -- domestic and foreign -- has been closely watched considering concerns of a global economic slowdown have been helping to push the futures complex lower.

On a four-week moving average, total refined product supplied at 20.42 million b/d last week was down 26,000 b/d from the same week in 2018. That year-on-year deficit has been narrowing over the past three weeks, from 549,000 b/d the week ending May 17.

Gasoline exports fell 148,000 b/d to 531,000 b/d and distillate exports fell 339,000 b/d to 1.14 million b/d, the EIA data showed.

"Gasoline and distillate exports both slipped and while that may be a weekly aberration, that is noteworthy and could be rather bearish for US refined products if exports remain low," said IAF Advisor analyst Kyle Cooper.

US gasoline stock rose 764,000 barrels to 234.91 million barrels, EIA data showed. Stocks fell 1.58 million barrels on the US Atlantic Coast, home of the New York delivery point for the NYMEX RBOB contract, putting inventories just 1.9% below the five-year average.

That deficit was likely not too encouraging for the RBOB bulls considering that US gasoline production climbed 227,000 b/d to 10.28 million b/d last week.

US distillate production fell 165,000 b/d to 5.24 million b/d, although production was above year-ago levels, the EIA data showed.

US distillate stocks fell 1 million barrels last week, although USAC stocks climbed 724,000 barrels to 41.54 million barrels.

CRUDE IMPORTS SLIP

Crude imports from Canada fell by 183,000 b/d to 3.68 million b/d last week, while imports from Mexico climbed 364,000 b/d to 874,000 b/d, the EIA data showed.

Coking margins have slipped this month on the US Gulf Coast, but margins for Western Canadian Select crude remain high, and should encourage imports from Canada.

Mexican Maya coking margins have averaged $5.70/b so far in June, down from $8.73/b in May, S&P Global Platts data shows. WCS provides a better return, with coking margins averaging $15.71/b so far in June, down from $16.75/b in May.

USGC refiners are keen to replace lost Venezuelan heavy crude barrels with Canadian crude, but are limited by a shortage of takeaway capacity.

Crude-by-rail exports into the US have likely risen to 270,000-280,000 b/d in May, up from an estimated 240,000 b/d in April, Tudor, Pickering, Holt & Co said earlier this week.

S&P Global Platts Analytics sees crude-by-rail exports out of Canada rising to around 400,000 b/d by the end of year, barring an unforeseen increase in government production curtailments.

Alberta has capped production of raw crude and bitumen at 3.71 million b/d in June and July, up from 3.68 million b/d in May and 3.66 million b/d in April.

US crude exports fell last week, which would support a crude stock build, but only by 176,000 b/d to 3.12 million b/d.

-- Jeff Mower, jeff.mower@spglobal.com

-- Pat Harrington, patrick.harrington@spglobal.com

-- Edited by James Bambino, newsdesk@spglobal.com