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Highlights

Crude stocks move to a surplus to the five-year average

Exports steady amid open arbitrages to Europe, Asia

Distillate draw unable to lift NYMEX ULSD

New York — Oil futures continued to face downward pressure Wednesday amid a larger-than-expected US crude stock build and a bearish macroeconomic backdrop.

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US commercial crude stocks rose 3.1 million barrels to 422.64 million barrels for the reporting week ended September 27, US Energy Information Administration oil data showed Wednesday. The build brought crude stocks to a 1.13% surplus to the five-year average of EIA data. Analysts polled by Platts Monday had been looking for crude inventories to build by just 1.3 million barrels.

November NYMEX WTI settled 98 cents lower at $52.64/b, while ICE December Brent settled $1.20 lower at $57.69/b.

While analysts are divided on how poor the economy is actually performing, many expect further downward revisions to demand growth. FGE on Wednesday revised its global oil demand growth for 2019 to just 740,000 b/d.

"Among the major forecasters, only the EIA (US DoE) is expecting less than 1 million b/d growth this year, while the IEA and OPEC still project over 1 million b/d, although the IEA yesterday implied that there may be a further revision to its demand figure in this month's edition of its report," FGE analysts said.

ADP non-farm payroll data released early Wednesday came in at just 135,000 additional jobs, missing economists' targets of closer to 140,000. FGE cited a slew of bearish data released this week, including falling industrial production out of Japan and South Korea, as well as Chinese and South Korean PMI readings below 50, which signal contraction.

That said, Platts Analytics' Scenario Planning Service's forecast expects oil demand growth rate to decelerate, but not as quickly as some have suggested over the medium- and long-term.

"In our World Energy Demand Model, we forecast average oil demand growth of 1.1 million b/d between 2021 and 2030," S&P Global Platts Analytics said Tuesday. "The driving force behind this view is our forecast of economic growth and the elasticity of oil demand. We look for the ratio of oil demand growth to GDP growth to hold near recent levels in the 2020s as oil demand has proved to be sticky in recent years outside of economic slowdowns."

US CRUDE PRODUCTION, EXPORTS SUSTAIN

The US crude stock build comes amid still-strong US production, which was pegged at 12.4 million b/d last week, and sliding refinery utilization. Utilization rates fell a massive 3.4 percentage points to just 86.4% of capacity. Analysts surveyed had been looking for a much-smaller 0.6 percentage point decline.

Crude runs alone fell 469,000 b/d to just over 16 million b/d, the fewest since the week ended March 29, according to EIA data. The bulk came via a 392,000 b/d-decline in Gulf Coast runs, which fell to 8.54 million b/d.

The USGC is home to more than half of US refinery capacity.

US crude exports remained strong at 2.87 million b/d, although this is down from the more than 3 million b/d seen over much of late August and early September.

S&P Global Platts Analytics calculations show the arbitrage for US crudes into Europe and Asia as largely open. For example, WTI MEH can deliver into Northwest Europe at a near-$2/b discount to North Sea Forties, and can deliver at a near-$3/b discount to Russian ESPO into Northeast Asia.

Crude imports remained weak, coming in at just 6.29 million b/d last week. This is largely a result of a 198,000 b/d decline in Midwest imports, almost exclusively from Canada, which fell to 2.64 million b/d.

DIESEL DRAW FAILS TO RALLY FUTURES

US distillate stocks fell in line with expectations, down 2.42 million barrels to 131.27 million barrels, but NYMEX ULSD futures continued to tumble along with crude.

Prompt November ULSD settled 2.55 cents lower at $1.8730/gal.

The draw put US distillate stocks at a 3.57% deficit to the five-year average, the largest this measure has been -- and, thus, the tightest supply has been -- since late December 2018.

ATLANTIC COAST GASOLINE STOCKS BUILD

US gasoline stocks fell 228,000 barrels to 229.98 million barrels last week, contrary to analysts' expectations for a 300,000-barrel build.

But stocks on the US Atlantic Coast, home to the New York Harbor-delivered NYMEX RBOB contract, rose 536,000 barrels to 64.91 million barrels, and this likely weighed on RBOB futures, which settled 2.82 cents lower at $1.5455/gal.

EIA data showed total US gasoline stocks remained at a steady 3%-4% surplus to the five-year average last week, not unusual for this time of year.

-- James Bambino, james.bambino@spglobal.com

-- Edited by Jim Levesque, newsdesk@spglobal.com

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