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US crude draws likely resume amid stronger refinery runs, rising exports

Highlights

Commercial crude stocks expected down 2.5 million barrels

Refinery utilization likely up 0.8 point

Gasoline, distillate stock draws likely extend

US crude oil inventory draws likely resumed in the week ended July 23 amid an expected uptick in refinery runs and stronger exports, an S&P Global Platts analysis showed July 26.

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Total commercial crude oil stocks likely declined around 2.5 million barrels to 437.2 million barrels last week, analysts surveyed by Platts said, more than erasing a 2.11 million-barrel build seen the week prior and leaving inventories at the lowest since the week ended Jan. 31, 2020. The expected draw is still less than is typically seen during this time of year, however, and would narrow the deficit to the five-year average of US Energy Information Administration data to 6.8% from 7.1% seen during the week ended July 16.

The draw comes as refinery utilization is expected to climb to 92.2% of total capacity, a 0.8 percentage point increase from the week prior. The uptick would snap three consecutive weekly declines and put refinery utilization at a level last seen in late June.

Refinery runs trimmed

US refinery runs have been trimmed in recent weeks because of a string of unplanned outages that saw 3.16 million b/d of capacity offline during the week ended July 16, according to S&P Global Platts Analytics. However, downtime for the week ended July 23 is expected to fall off to about 3 million b/d, increasing the pull on crude supply.

An uptick in margins likely added further tailwinds to refinery runs last week. US Gulf Coast WTI MEH cracking margins averaged $13.81/b in the five days ended July 23, up from a July to-date average of $13.09/b.

Meanwhile, data from cFlow, Platts trade flow software, shows US crude exports averaged 2.74 million b/d in the week ended July 23, an increase of more than 11% from an EIA-reported 2.46 million b/d seen the week prior.

The recent slowdown in US exports is likely in part due to the lingering effects of a narrowing arbitrage seen in late spring. The ICE Brent-WTI spread, an indicator of the competitiveness of US crude abroad, narrowed from nearly $4/b in late April to a low of $1.51/b on July 1. The spread has since widened to more than $2/b during July, but since current loading cargoes were likely booked months ago, this improvement in export economics has yet to be reflected in the weekly outbound volumes.

Product draws likely extend amid steady demand

US refined product inventory draws are expected to have continued in the week ended July 23, analysts said, with total gasoline stocks seen 1.3 million barrels lower at around 235.1 million barrels and distillate stocks expected down 1.6 million barrels at 139.4 million barrels.

The expected gasoline draw would leave stocks 0.4% behind the five-year average and at the lowest since the week ended May 28.

Notably, during the week ended July 16, gasoline stocks were below average in all regions outside the US Atlantic Coast, where storages were around 3.1% above the five-year average. These relatively ample USAC inventories added headwinds to regional gasoline cracks, with the ICE New York Harbor RBOB crack versus Brent falling to $19.97/b in the week ended July 23 from $20.24/b seen the week prior.

The expected gasoline draw comes amid a likely uptick in end-user demand. Apple mobility data shows US driving activity climbed to 165.5% of the January 2020 baseline, a record high for the index.

Apple data also shows transit activity, an indicator of distillate demand, averaged 101.3% of baseline last week and was the highest since early March 2020, prior to the demand-destroying pandemic lockdowns seen later that month.