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US crude inventory draws extend as Hurricane Ida shut-ins stunt production

Highlights

Commercial crude stocks fall 6.42 million barrels

Crude output climbs just 100,000 b/d

Gasoline draw blunted by demand slowdown

US crude oil inventory draws extended in the week ended Sept. 10, as production remained stunted by lingering Gulf of Mexico shut ins following Hurricane Ida.

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Total US commercial crude stocks fell 6.42 million barrels to 417.45 million barrels in the week ended Sept. 10, US Energy Information Administration data showed Sept. 15. The draw put stockpiles 7.5% behind the five-year average for this time of year and at the lowest outright since September 2019.

NYMEX front-month October WTI settled up $2.15 at $72.61/b and front-month ICE November Brent climbed $1.86 to $75.46/b

The draw was largely the result of lingering US Gulf of Mexico production outages following Ida, which made landfall near Port Fourchon, Louisiana Aug. 29 as a Category 4 storm.

As of Sept. 10, the final day of the inventory reporting period, 1.207 million b/d, or 66.36%, of US Gulf of Mexico crude oil production remained offline, according to the US Bureau of Safety and Environmental Enforcement.

Total US crude output averaged 10.1 million b/d in the week ended Sept. 10, EIA said, up 100,000- b/d from the week prior but still down 1.4 million b/d from pre-storm levels.

Meanwhile, nationwide refinery utilization climbed to 82.1% of capacity, up 0.2 percentage point from the week prior. Total refinery net crude inputs were up 90,000 b/d on the week at 14.39 million b/d.

The modest increases in nationwide utilization and crude demand belie wider regional swings.

Notably USGC utilization fell 2.8 points to 72.9% of capacity, even as area refiners were heard bringing storm-shuttered facilities back online throughout the week. The downturn in USGC run rates could be the result of regional refiners facing feedstock issues amid the extended production shutdowns post-Ida.

The US Department of Energy had authorized the release of crude from the nation's Strategic Petroleum Reserve in the days following Ida's landfall in an effort to keep those refiners that were still operable with feedstock to avoid fuel shortages. EIA data showed SPR inventories declined 530,000 barrels to 620.77 million barrels, putting them at the lowest since September 2003.

However, Midwest refinery runs surges 6.7 percentage points to a three-week high 95.6% of capacity. This increase in refinery demand likely contributed to a 1.1 million-barrel drawdown in inventories at the NYEMX delivery point of Cushing, Oklahoma.

Overall refinery utilization was still around 5% behind average and net crude inputs came in more than 8% below normal last week. But despite a significant amount of capacity remaining offline post-Ida, US Gulf Coast cracking margins for WTI MEH dropped to $16.07/b for the week ended Sept. 10, from the $16.97/b for the week ended Sept. 3, according to S&P Global Platts Analytics data. The weakened margins are due in part to headwinds from a steep rise in the price of natural gas, used as a power source for many refineries. BSEE data shows that more than 75% of US Gulf natural gas output remained shut in during the week.

Nationwide gasoline stocks drew down 1.86 million barrels to 218.14 million barrels, leaving inventories around 4.5% behind the five-year average for the widest deficit since mid-March.

The inventory slide comes despite implied demand falling 7.5% to 8.89 million b/d, the weakest since the week ended June 4.

Apple Mobility data showed US driving activity averaged 152.4% of the index's January 2020 baseline last week, down around 3.5 percentage points from the week prior and the lowest since the week ended June 4. The US Labor Day holiday, which fell withing the reporting window, typically marks the end of the summer driving season and portends lower gasoline demand heading into fall.

But while demand slackened, imports too moved sharply lower. Total inbound gasoline volumes averaged 640,000 b/d, down 260,000 b/d or 29% from the week prior and the lowest since late March.

Meanwhile, weekly gasoline production was down 8.4% at an eight-week low of 9.27 million b/d.

The gasoline draw was realized mostly on the USGC, where stocks declined 1.81 million barrels to just shy of 80 million barrels. The draw pushed regional inventories below the five-year average for the first time since early August.

Nationwide distillate stocks declined 1.69 million barrels to 131.9 million barrels, putting them nearly 14% behind average and at the lowest since mid-May.