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Oil

Analysis: US crude oil stocks resume draw as refiner demand surges

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Analysis: US crude oil stocks resume draw as refiner demand surges

Highlights

US crude stocks fall 2.73 million barrels to 437.78 million barrels

Refinery utilization up 1.1 points at 95.9% of capacity

Products show surprise build as demand dips

New York — US crude oil inventories resumed a seasonal draw last week amid a surge in refinery demand and rising exports, US Energy Information Administration data showed Wednesday.

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Commercial crude stocks fell 2.73 million barrels to 437.78 million barrels in the week that ended August 16, according to the EIA's weekly stocks report. The draw-down snapped two consecutive weeks of counter-seasonal builds and narrowed the nationwide supply overhang to 3.25% above the five-year average, from 3.5% the week prior.

Strong refinery crude demand contributed to the draw. Net crude inputs were up 400,000 b/d on the week at 17.70 million b/d and nationwide refinery utilization was up 1.1 percentage points at 95.9% of capacity.

Midwest run rates were especially strong at 99.9% of capacity and regional net crude inputs were 9.6% above the five year average at 4.12 million b/d. US Gulf Coast utilization rate was up 1.1 percentage point at 97.1% of capacity, the strongest since early January.

The crude draw-down was concentrated at Cushing, Oklahoma, the delivery point of the NYMEX crude contract. Stocks there were 2.49 million barrels lower last week to 42.34 million barrels, the lowest since mid-January. The Cushing draw comprised the bulk an overall Midwest inventory decline of 2.64 million barrels to 129.99 million barrels.

USGC crude inventories, in contrast, were up 690,000 barrels at 225.15 million barrels last week, due in part to an uptick in crude output as well as the startup of new Permian Basin takeaway capacity. Notably, the USGC draw came despite a 120,000 b/d uptick in exports to 2.80 million b/d.

Last week marked the start of flows on Plains All American's 670,000 b/d Cactus II pipeline, which stretches from West Texas production areas to coastal export hubs. The line is the first of three new pipelines slated to launch this year, along with the 400,000 b/d EPIC interim crude line, which started this week, and the 900,000 b/d Gray Oak pipeline expected to start service later this year.

The new pipelines will be sufficient to meet Permian takeaway needs through 2020, according to S&P Global Platts Analytics.

Regional crude flows are likely to shift as the pipelines ramp up to nameplate capacity. Previously, Permian output slated for export mainly flowed north to Cushing, where it was then routed back south to USGC ports. The new capacity allows exporters to bypass Cushing entirely, keeping barrels in the USGC region until they are waterborne.

In terms of the EIA inventory report, this would likely contribute to a sustained downward pressure on stocks at Cushing while supporting Gulf coast inventories.

The de-bottlenecking of Permian production is also likely to contribute to increased marginal production in the basin as inland discounts fade.

Last week the discount for WTI at Midland, Texas compared with Houston fell to about $1.70/b, in sharply from a July average of around $5/b, Platts data showed.

While nationwide crude production was flat at 12.3 million b/d last week, according to EIA data, output in the Lower 48 edged up 100,000 b/d to 12 million b/d, an all-time high.

PRODUCTS BUILD AS DEMAND WANES

Refined product stocks showed unexpected increases last week. Total US distillate stocks increased 2.61 million barrels to 138.12 million barrels, the EIA data showed, while gasoline inventories rose 310,000 barrels to 234.07 million barrels.

Analysts had been expecting 200,000 barrel and 1.6 million barrel draw-downs in distillate and gasoline stocks, respectively, when surveyed Monday by Platts.

While the builds were due in part to strong refinery runs, a 1.09 million b/d decline in total product demand to 20.99 million b/d contributed to rising inventories. Gasoline demand fell back 310,000 b/d to 9.63 million b/d and distillate demand was down 100,000 b/d at 3.76 million b/d, a five-week low.

US Atlantic Coast gasoline stocks were higher for a third straight week, swelling 780,000 barrels to 62.37 million barrels. The build put regional inventories just 0.5% under the five-year average for this time of year, nearly eliminating a deficit that was as wide as 9.7% in early June.

-- Chris van Moessner, christopher.vanmoessner@spglobal.com

-- Edited by Gary Gentile, newsdesk@spglobal.com

2nd Annual North American Crude Oil Exports Summit | October 28-30, 2019 | Houston, Texas

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