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Analysis: Crude futures rally on smaller-than-expected stock build, Middle East conflict


Houthis claim to have shot down fighter plane

USGC crude imports near record low

Refiners up crude runs, maximizing distillates

New York — Crude futures rallied Wednesday, driven higher by a smaller-than-expected build in US crude inventories and heightened geopolitical tensions in the Middle East.

NYMEX front-month crude settled up $1.90 at $57.11/b, while ICE front-month Brent settled $1.49 higher at $62.40/b.

US crude stocks climbed 1.38 million barrels to 450.38 million barrels last week, US Energy Information Administration data showed Wednesday. Analysts polled by S&P Global Platts on average were looking for a build of roughly 1.6 million barrels.

Also, the EIA build fell short of the nearly 6-million barrel increase reported by the American Petroleum Institute Tuesday evening.

Crude futures rallied on the EIA data, and extended after news reports that Houthi forces in Yemen shot down a Saudi Arabian coalition F-15 fighter plane.

"The Saudi-led intervention in Yemen has been going on for four years and is another reminder of the many geopolitical risks that are in the Middle East," said OANDA senior market analyst Edward Moya in a report.

The Saudi-led military coalition in Yemen on Monday accused Houthi rebels of hijacking a tugboat towing a South Korean-owned drilling rig in the south of the Red Sea.

The Saudi-led coalition said in a release Wednesday that the hijacked tugboat Rabigh-III was returned to its owner.

Nevertheless, crude futures fell from their intra-day highs on skepticism that a US-China trade deal would not be hammered out ahead of the December 15 deadline for a new round of US tariffs on Chinese goods.

Recent news reports have thrown doubt on the possibility that a trade deal would get done until 2020, sending equities tumbling Wednesday.


Demand was higher for crude last week, as US refiners continued to raise runs as they gradually return from fall maintenance.

Refiners were operating at 89.5% of capacity last week, up 1.7 percentage points, the EIA data showed.

The increase was primarily seen in the US Midwest and US Gulf Coast. Combined net crude inputs for those regions climbed 477,000 b/d last week to 12.63 million b/d. That was up 876,000 b/d from the week ending October 11, the peak of fall maintenance season.

Crude demand should continue to rise over the next several weeks as refiners up runs, causing US inventories to draw.

S&P Global Platts Analytics data shows just 355,000 b/d of combined Midwest and USGC planned distillation capacity offline by mid-December, down from 2.1 million b/d the week ending November 1.

Refiners were well-supplied with crude, as US production remained at a record high 12.8 million b/d last week, and crude imports climbed 222,000 b/d to 5.97 million b/d.

Midwest imports climbed 155,000 b/d to 2.53 million b/d, likely as TC Energy began restarting its 590,000 b/d Keystone pipeline, allowing more Canadian crude into the region.

USGC crude imports fell 236,000 b/d last week to just 1.04 million b/d, the lowest level since February 1985, the EIA data showed.

And crude exports, the bulk of which originate from the USGC, jumped 394,000 b/d last week to 3.03 million b/d, the EIA data showed.

Still, USGC crude stocks climbed 1.58 million barrels last week to 231.82 million barrels, owing to the abundance of regional shale crude.


NYMEX front-month ULSD settled 3.47 cents higher at $1.8921/gal, while front-month RBOB settled 5.26 cents higher at $1.6563/gal.

US distillate stocks fell 974,000 barrels to 115.68 million barrels, while inventories on the US Atlantic Coast fell 1.48 million barrels to 36.22 million barrels.

That widened the deficit to the five-year average to roughly 29% from the prior week's 26%, which is supportive for the New York-delivered NYMEX ULSD contract.

US gasoline stocks climbed 1.76 million barrels last week to 220.85 million barrels, while stocks on the USAC fell 1.78 million barrels to 58.35 million barrels.

The USAC draw still left the region with a slight surplus to the five-year average. That would be a bearish consideration for the New York-delivered NYMEX RBOB contract.

However, RBOB is getting support as refiners are maximizing distillate production ahead of peak winter demand and new low sulfur bunker fuel specifications rolling out on January 1.

US gasoline production has risen just 55,000 b/d since the week ending October 11 - again, when refiners were in peak maintenance - while distillate output has climbed 436,000 b/d.

-- Jeff Mower,

-- Edited by James Bambino,