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ANALYSIS: US crude stocks expected lower as refinery runs, exports edge higher

Highlights

Commercial crude stocks expected down 1.7 million barrels

Thanksgiving driving demand down 35%

US oil rig count hits six-month high

New York — US crude oil inventories likely declined in the week ended Nov. 27 amid an expected uptick in refinery demand and steady exports, an S&P Global Platts analysis showed Nov. 30.

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Commercial crude inventories likely drew 1.7 million barrels lower last week to around 487 million barrels, analysts surveyed by Platts said. The draw would leave stocks nearly 7% behind the five-year average of US Energy Information Administration data, out from 6.2% the week prior.

Refinery utilization is expected higher for a third straight week, with analysts calling for a 1 percentage point bump in runs to 79.7% of total capacity. The recent uptick in utilization has largely tracked seasonal norms, leaving runs to hover around 14.5% behind normal since early November.

Still, US refining margins ticked higher last week despite anemic demand by Thanksgiving drivers, adding some additional incentive for refiners.

US Atlantic Coast cracking margins for Bonny Light rose 51 cents/b to average $3.48/b for the week ended Nov. 27, according to S&P Global Platts Analytics margin data. On the US Gulf Coast, WTI MEH cracking margins averaged $6.36/b for the week ended Nov. 27 compared with $5.52/b the week earlier.

While overall US road travel for the Thanksgiving holiday was down 35% from last year, over the last 30 days road travel is down only 20.8% compared with last year, according to Arrivalist's Daily Travel Index.

Weak gasoline demand was in part offset by an uptick in demand for jet fuel. According to Transportation Security Administration checkpoint data, the number of people flying for the holiday weekend reached levels not seen since early March, averaging over 1 million per day starting Nov. 20, the day before the Thanksgiving holiday, and again on Sunday, Nov. 29.

Total gasoline inventories are expected to climb around 1.1 million barrels to 231.2 million barrels, analysts said. The expected build comes in under seasonal norms and would narrow the surplus to the five-year average to just 3.3%, the weakest since mid-October.

Distillate inventories likely climbed around 400,000 barrels to 143 million barrels, analysts said. The build would leave stocks around 6% above average, marking the smallest surplus since the week ended April 24, and would snap ten consecutive weekly draws that had seen inventories fall 36.7 million barrels since early September.

US drilling activity hits six-month highs

The US oil drilling rig count climbed 23 to 290 in the week ended Nov. 25, according to rig data provider Enverus. It was the largest one-week jump in the oil rig count since at least January 2019, and put the number of active rigs at the highest since the week-ended April 25 - the week front-month WTI crashed below $0/b.

Rig counts pushed to multi-month highs across most oil-focused plays. Operators in the Permian Basin added 13 rigs for a total of 176, putting counts there at the highest since mid-May. Drilling activity in the Eagle Ford and Denver-Julesberg basins was the strongest since the week-ended April 22 after operators added two rigs and one rig, respectively, for a total of 29 and 10.

The increase in drilling activity comes as WTI forward curves have strengthened in recent weeks. Backwardation returned to the NYMEX WTI curve last week for the first time since late February, when state and local governments first began implementing COVID-19 lockdowns. The year-ahead contract settled at a 4 cent/b discount to the front-month on Nov. 25.

Despite the recent uptick in drilling, Platts Analytics expects total US crude and condensate production to be 900,000 b/d lower during 2021 at 10.3 million b/d, down from 11.2 million b/d in 2020. Fewer barrels available are expected to cause total exports to fall to 2.2 million b/d on average through 2021.

US crude exports averaged at 2.97 million b/d in the week ended Nov. 27, data from cFlow, Platts trade flow software showed, up from an EIA-reported 2.83 million b/d the week prior and the strongest since the week ended Oct. 23.