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Analysis: US crude stocks tighten as global supply losses mount

New York — Supply disruptions from Libya, Iran, Venezuela and Canada have combinedwith falling US crude stocks to keep a floor under oil prices, despiteSaudi Arabia's efforts to boost OPEC production to offset those losses.

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* Crude draw expected last week

* Decline also likely for gasoline stocks

* Cushing, Oklahoma, remains in focus

With US crude exports and refinery runs hitting record highs the weekending June 22, US crude stocks have sunk further below the five-yearaverage, according to Energy Information Administration data.

That has amplified a sense among traders that the global market istightening, which explains the higher oil prices. ICE September Brent was$77.70/b Monday afternoon, while NYMEX August crude was $74.10/b.

Analysts surveyed Monday by S&P Global Platts expect crude stocks felllast week by 4.5 million barrels.

That would slightly exceed the average draw of 4.3 million barrels seenfor the same period in 2013-17. Crude stocks typically fall at this timeof year as refiners run hard to meet summer demand.

Inventories have fallen four of the last six weeks by a total of 19.3million barrels, including a massive draw of 9.89 million barrels theweek ending June 22, the largest since September 2016.

That pulled inventories 3.6% below the five-year average, the biggesthole since stocks flipped from a surplus to deficit in mid-March. A yearago, inventories sat 26.7% above the five-year average.

One factor behind the drawdown has been US crude exports, which have shothigher to help fill the void left in Europe and Asia by the voluntary andinvoluntary reductions from OPEC producers.

Crude exports averaged 3 million b/d the week ending June 22, an all-timehigh. Exports have averaged 1.79 million b/d so far this year, which wasmore than 1 million b/d more than the same period in 2017.

While the OPEC/non-OPEC coalition has pledged to raise output by 1million b/d starting in July, that does not necessarily mean US exportswill decline rapidly either.

One barometer for US crude exports is the ICE Brent/WTI spread. A widerspread creates an incentive for US producers to sell oil overseas inorder to capture higher prices abroad.

That spread blew out to more than $11/b June 7, the widest it has beensince early 2015 before legal restrictions on US exports were lifted.

The differential narrowed sharply last week, settling as low as $4.40/bon Thursday. The ICE Brent/WTI spread was around $5.85/b Monday.

This is still within the $3/b-$7/b range seen from August until mid-Maywhen US crude exports hit record highs on several occasions.

Further, a tight global market because of ongoing disruptions inVenezuela, Libya and potentially Iran down the road could place the onuson US production to help fill any voids.


US Secretary of State Mike Pompeo told lawmakers last week that sanctionson Venezuela's oil sector could be imposed despite the potential for anegative impact on US Gulf Coast refiners.

Sanctions would likely further hurt Venezuelan production, which hasalready fallen by 910,000 b/d over the last two years to 1.36 million b/din May, according to the latest S&P Global Platts OPEC survey.

Also last week, a senior State Department official said the US has noplans to issue sanctions waivers for countries buying Iranian crude,urging them to halt imports by November 4.

On the heels of Ambassador Nikki Haley's visit to New Delhi, India's oilministry instructed state-run refiners to purchase alternatives toIranian crude, which had been India's third-largest crude oil supplier.

While in Libya, force majeure has been declared on loadings from thecountry's eastern terminals of Zueitina, Marsa el-Hariga, Ras Lanuf andEs Sider as rivals fight for control over exports.

The loss of Libyan crude has been felt in the Mediterranean oil market,where refiners are looking for substitutes, turning to grades such as theNorth Sea's Ekofisk and Russian Urals.


Meantime, North America is grappling with a supply loss of its own afterCanada's Syncrude production unexpectedly shut down last month.

Stocks at Cushing, Oklahoma -- delivery point for the NYMEX crudecontract -- could tighten further as a result.

Inventories at Cushing have drawn six straight weeks to 29.893 millionbarrels. If stocks fall by another 1.7 million barrels, the amount ofcrude in storage will be the smallest it has been since December 2014.

The Syncrude disruption also coincides with a slowdown in US oil drillingas well as increased refinery demand.

The amount of crude processed by refineries rose 115,000 b/d to 17.816million b/d the week ending June 22, the highest level on record,according to EIA data going back to 1982.

Analysts surveyed Monday expect the refinery utilization rate to haveinched 0.2 percentage point higher last week to 97.7% of capacity. A yearago, the utilization rate averaged 93.6%.

The survey also found gasoline stocks were likely to have declined by 2.5million barrels, while distillate stocks were expected to have fallen by250,000 barrels. --Geoffrey Craig,

--Edited by Derek Sands,