S&P Global Platts Analysis of U.S. Energy Information Administration (EIA) Data

Jun 16, 2017

U.S. crude oil stocks showed a lower-than-expected drawdown for the latest reporting, while builds in gasoline and distillates inventories put further pressure on the oil complex prices, following the U.S. Energy Information Administration (EIA) data released Wednesday. Below is a commentary by Geoffrey Craig, S&P Global Platts oil futures editor.

New York Mercantile Exchange (NYMEX) July crude oil fell below $45 per barrel (/b) Wednesday, even though EIA data showed U.S. crude inventories showed a drawdown of 1.661 million barrels to 511.546 million barrels in the week that ended June 9.

Analysts surveyed Monday by S&P Global Platts were looking for crude stocks to have declined 2 million barrels last week.

Crude inventories have declined nine of the last 10 reporting periods by nearly 24 million barrels, reducing the surplus to the five-year average by 28 million barrels to 108.526 million barrels.

The fact that crude stocks have declined at faster-than-normal rates would appear to be a bullish sign for prices, but traders have downplayed this trend in favor of other data points that paint a different picture.

The main engine behind crude drawdowns has been refinery activity, which has been unusually strong this spring, but concurrently raises oversupply concerns in the refined product market.

With gasoline and distillates stocks registering consecutive builds amid waning demand, those concerns appear to have materialized and prices are adjusting to persuade refiners to slow down.

The front-month NYMEX reformulated blend stock for oxygenate blending (RBOB) crack price spread against West Texas Intermediate was down 92 cents at $15.60/b Wednesday, compared with more than $19/b June 1.

The amount of crude processed by refiners increased 29,000 b/d last week to 17.256 million b/d, which was 939,000 b/d above the year-ago level and 254,000 b/d off the all-time high set two reporting periods earlier.

Refinery utilization rose 0.3 percentage points last week to 94.4% of capacity. Analysts were looking for the run rate to be unchanged. During the last four weeks, the utilization rate has averaged 94.25% of capacity, compared with 90.15% during the same period a year ago.

Refiners’ strong crude appetite has helped absorb supply from growing U.S. production, as well as imports — which have yet to back down this year despite OPEC-led supply cuts being in place.

U.S. producers pumped 9.33 million b/d on average last week, which was 560,000 b/d more than at the end of 2016.

With the number of active rigs continuing to rise, the prospects for further growth in production look strong.

CANADIAN IMPORTS DOWN

Crude imports decreased 316,000 b/d to 8.025 million b/d last week. Year-to-date imports have averaged 8.171 million b/d, exceeding the year-ago level by 378,000 b/d.

There have been expectations that OPEC-led supply cuts would begin to have an impact this spring given the time lag for tankers to arrive at U.S. ports.

Across the last four weeks, crude imports have averaged 8.161 million b/d, which was nearly the same as the preceding year-to-date period.

Saudi Arabia’s energy minister, Khalid al-Falih, said May 25 that exports from his country to the U.S. have already started to decline, and there will be further decreases this year.

The four-week moving average for imports from Saudi Arabia has fallen to 1.095 million b/d, according to EIA data. That was down from 1.27 million b/d two reporting periods earlier.

But further data might be needed to establish a trend considering Saudi imports have oscillated this year. The four-week moving average equaled 1.03 million b/d the week that ended April 14, but then climbed the next six weeks.

Imports from Canada fell 387,000 b/d last week to 3.121 million b/d, helping stocks in the Midwest — where most Canadian imports enter the US — decline 1.386 million barrels to 156.483 million barrels.

GASOLINE DEMAND FALLS FURTHER

U.S. gasoline stocks increased 2.096 million barrels to 242.444 million barrels in the week that ended June 9, EIA data showed Wednesday. Analysts were looking for a draw of 600,000 barrels.

The five-year average shows gasoline stocks starting to drop in mid-February, which has been the case this year, but the size of the declines has been smaller-than-usual.

Gasoline stocks have declined 16.619 million barrels since the week that ended February 10, versus an average draw of 21.6 million barrels during the same period from 2012-16.

On the Atlantic Coast, home to the New York Harbor-delivered NYMEX RBOB futures contract, gasoline stocks fell 227,000 barrels last week to 68.969 million barrels, a surplus of 7.269 million barrels to the five-year average.

Implied gasoline demand declined 48,000 b/d last week to 9.269 million b/d, failing to rebound after a big drop the week before that some analysts downplayed as likely a one-off event.

Over the last two weeks, demand has averaged 9.293 million b/d, compared with 9.763 million b/d during the two weeks prior to that, and 9.665 million b/d the same period a year ago.

DISTILLATE EXPORTS FALL

Distillate stocks rose 328,000 barrels last week to 151.416 million barrels, while analysts were looking for a build of 200,000 barrels.

Inventories fell 14 of 15 weeks through the week that ended May 19 by 24.4 million barrels, but have since risen the last three weeks by a total of 5.1 million barrels.

Exports fell 169,000 b/d to 1.123 million b/d, a likely factor behind last week’s build of 2.52 million barrels in U.S. Gulf Coast (USGC) inventories of low- and ultra-low sulfur diesel.

USGC combined stocks sit at 43.619 million barrels, which was 389,000 barrels above the year-ago level and 6.782 million barrels more than the five-year average for this time of year.

*Implied demand is the amount of product that moves through the U.S. distribution system, not actual end consumption.

Source: S&P Global Platts

HEADLINES