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Analysis: US crude stocks race higher as exports flag, imports surge

Highlights

Commercial crude stocks rise 5.65 million barrels

Exports at 8-month low, imports at 11-month high

Virus resurgence threatens product demand recovery

New York — A steep decline in US oil exports and a flood of imports pushed crude inventories higher last week, even as refinery inputs and refined product demand edged higher, US Energy Information Administration data showed July 8.

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US commercial crude inventories surged 5.65 million barrels to 539.18 million barrels during the week ended July 3, Energy Information Administration data showed July 8, putting stockpiles nearly 18% above the five-year average for this time of year.

An additional 1.59 million barrels of crude flowed into storage at the nation's Strategic Petroleum Reserve.

The bulk of the build was realized on the US Gulf Coast, where stocks grew 5.05 million barrels to a fresh all-time high 309.02 million barrels, but inventories at the NYMEX light sweet crude delivery point of Cushing, Oklahoma, were also up 2.21 million barrels on the week at 47.79 million barrels.

Crude inventories saw upward pressure both from a steep decline in exports as well as flood of imports.

Total crude exports averaged 2.39 million b/d, down 700,000 b/d from the week prior and the lowest since November 2019, as economics for moving crude to Asia have eroded. WTI MEH delivered into Japan has averaged a 14 cent/b discount to Russian ESPO in Japan to date in July, according to S&P Global Platts Analytics crude Arbflow data, in from 65 cents/b in June. Meanwhile incentives for moving WTI MEH to Singapore have been negative since May.

An estimated 6.5 million barrels of US crude flowed to Asia in the week ended July 3, data from cFlow, Platts trade-flow software, showed, down from 11.78 million barrels the week prior. Notably, cFlow data shows that China-bound crude volumes reached 3.32 million barrels last week, roughly double the 1.67 million barrels shipped the week prior.

Meanwhile, total US imports surged 1.43 million b/d to 7.39 million b/d, the highest since August, driven almost entirely by a 1.76 million b/d uptick in crude flows into the Gulf to nearly 3.2 million b/d. USGC crude imports were last higher in June 2018. Crude imports from Mexico averaged 1.33 million b/d, according to EIA, up from around 500,000 b/d the week prior.

While refinery margins have generally edged lower in recent weeks, Mexican medium sour Isthmus crude remains a top performer in the USGC. Cracking margins for the grade have averaged at $6.93/b to date in July, $1.76/b stronger than WTI MEH, according to Platts Analytics data.

Refinery net crude inputs climbed 3.14 million b/d to 14.35 million b/d, as total utilization rates jumped 2 percentage points to 77.5% of capacity. Net crude inputs were at a 14-week high, but were still 16.2% behind the five-year average for this time of year.

Virus resurgence threatens product demand recovery

Total gasoline inventories sank 4.84 million barrels to 251.68 million barrels, narrowing the surplus to the five-year average to just 8.4%, the lowest since late March.

While US gasoline demand continues to recover from April lockdowns, driving fell last week in states hit hard by rising coronavirus cases, highlighting the ongoing risks to oil demand from reimposed stay-at-home restrictions.

Total US gasoline consumption was up nearly 2% on the week at 421.26 million gal/d, according to Kayrros geotracking data. In Texas and Florida, consumption was down 3.3% and 1.6%, respectively, while California demand was still nearly 21% behind year-ago levels after climbing just 0.5% on the week.

California, Texas and Florida represented about 27% of pre-crisis US gasoline demand, according to the EIA.

Distillate stocks, in contrast, were at the highest since December 1982 after climbing 3.14 million barrels to 177.26 million barrels. Product supplied for distillates fell to 3.02 million b/d, down 760,000 b/d on the week. While the holiday-shortened week may be partly responsible for the dip in demand, Kayrros data shows US long-haul diesel demand fell for a fourth straight week and was nearly 12% behind year-ago levels.