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Crude futures rally following US inventory draws

Highlights

Gulf Coast leads crude stock draw

Imports likely delayed by Nestor

USAC distillate deficit widens

Houston — Crude futures rose Wednesday after the US Energy Information Administration reported draws in crude and refined products inventories.

NYMEX front-month crude settled $1.49 higher at $55.97/b, while ICE Brent settled up $1.47 at $61.17/b.

US crude stocks fell 1.7 million barrels last week to 433.15 million barrels, according to the EIA data. Analysts polled by S&P Global Platts were on average looking for stocks to build by 4.7 million barrels.

The US Gulf Coast led the fall, with inventories down 3.71 million barrels last week at 223.22 million barrels, the EIA data showed.

A rise in crude demand from US refiners helped to draw inventories, as did a drop in imports and rise in exports.

US refinery runs increased, as refiners began to exit fall maintenance. Refiners were operating at 85.2% of capacity last week, up 2.1 percentage points, the EIA data showed.

USGC refiners were operating at 88.4% of capacity, up 3.9 percentage points.

US crude imports fell 438,000 b/d to 5.86 million b/d, with the bulk of that decline -- 256,000 b/d -- seen on the USGC.

Crude imports from Colombia dropped 464,000 b/d to 74,000 b/d, while imports from Mexico fell 258,000 b/d to 264,000 b/d, the EIA data showed.

Crude imports were already low as refiners were deep in maintenance, and have grown less reliant on foreign waterborne barrels because of higher domestic output.

Last week's drop could have been the result of loading delays related to Tropical Storm Nestor, which moved across the Gulf of Mexico, making landfall on the Florida panhandle on October 19.

This would suggest imports will increase in next week's EIA report.

The EIA does not report imports by country of origin on a regional basis. However, US Census data showed just six ships offloading roughly 2 million barrels of Mexican crude in the USGC for the seven days ended October 17, down from nine ships loading nearly 4 million barrels the week prior.

And since then, between October 18 and October 21, roughly 4 million barrels of imported crude was offloaded in the USGC, half of which originated in Mexico, the Census data showed.

US crude exports -- the bulk of which originate from the USGC -- rose 175,000 b/d last week to 3.3 million b/d.

A rise in freight costs has eaten into export arbitrage economics. The arbitrage for US light crudes into Europe remains open, but marginally, while the arbitrage into Asia is still wide, S&P Global Platts Analytics data showed.

For instance, the arbitrage incentive for Houston WTI against North Sea Forties in Rotterdam has tightened to just 35 cents/b from $1.20/b October 16.

REFINED PRODUCTS TIGHTEN

Also supportive for prices Wednesday were draws in refined products stocks. NYMEX front-month ULSD settled 2.06 cents higher at $1.9643/gal, while RBOB rallied 4.30 cents to settle at $1.6519/gal.

US distillate stocks fell 2.72 million barrels to 120.79 million barrels last week, while US gasoline stocks fell 3.11 million barrels to 223.09 million barrels.

Stock draws on the US Atlantic Coast were supportive for the New York-delivered NYMEX RBOB and ULSD contracts.

Gasoline stocks on the USAC tightened 550,000 barrels to 62.37 million barrels, leaving them roughly 3.5% above the five-year average.

USAC distillate stocks fell 1.2 million barrels to 36.13 million barrels. That left inventories at nearly 30% below the five-year average, with the deficit widening from 5% in early July.

Gasoline and distillate production edged higher last week as refiners began to exit fall maintenance, but production was still down from its summer peak, when refiners were running all out.

Production should continue to rise heading toward the end of the year. A combined 2.52 million b/d of distillation capacity was down for maintenance the week ended October 11 in the Midwest and USGC, according to Platts Analytics. By the week ended October 18, that figure was at 2.2 million b/d, and by end-November, just 153,000 b/d is expected to be down.

-- Jeff Mower, jeff.mower@spglobal.com

-- Edited by Manish Parashar, newsdesk@spglobal.com