U.S. commercial crude oil stocks jumped 8.9 million barrels to a record high 406.7 million barrels during the week ended January 23, U.S. Energy Information Administration (EIA) data showed.
The previous all-time high was set in April 2014 at 399.4 million barrels. EIA data goes back to 1982.
The 8.9 million-barrel increase was more than twice as much as analysts surveyed by Platts Monday expected. American Petroleum Institute (API) data released Tuesday showed a 12.7 million-barrel build.
Strong U.S. crude oil production and an economic incentive to store crude oil have pushed stocks higher just as a seasonal maintenance period began, lasting through April.
With less crude oil being drawn from inventories to meet refinery demand, U.S. crude oil stocks jumped almost 19 million barrels in the last two weeks.
U.S. refineries operated at 88% of operable capacity the week ended January 23, compared with 88.2% during the same reporting week one year ago.
The utilization rate actually rose on a weekly basis, up 2.5 percentage points, albeit from a low level the week ended January 16. Crude oil runs increased 347,000 b/d to 15.3 million b/d the week ended January 23.
Crude oil production inched 27,000 b/d higher to 9.2 million b/d, preliminary estimates showed. One year ago, crude oil production equaled 8 million b/d.
Refiners’ other supply source, imports, increased 204,000 b/d to 7.4 million b/d. On the U.S. U.S. Gulf Coast (USGC), imports were 259,000 b/d higher at 3.3 million b/d.
Mexican imports were 555,000 b/d higher at 939,000 b/d. Higher Mexican imports could be the result of stronger coking margins for Maya crude oil.
USGC coking margins for Maya averaged nearly $12 per barrel (/b) the week ended January 23, up from a 30-day moving average of $9.51/b. Olmeca margins averaged $8.29/b the week ended January 23, up from just $5.19/b over the past 30 days.
By comparison, Western Canadian Select margins were just $6.15/b the week ended January 23.
Platts margin data reflects the difference between a crude oil’s netback and its spot price. Netbacks are based on crude oil yields, which are calculated by applying Platts product price assessments to yield formulas designed by Turner, Mason & Co.
Imports from Canada were 181,000 b/d lower at 2.9 million b/d. Venezuelan imports were up 228,000 b/d to 954,000 b/d. Imports from Saudi Arabia were down 330,000 b/d to 669,000 b/d.
DEEPENING CONTANGO*
Besides meeting refiners’ needs, rising imports could be attributed to storage. Traders can profit from storing crude oil because crude oil futures have become more expensive for later-dated contracts than prompt delivery.
The same incentive is widely considered a factor behind growing U.S. crude oil stocks in general.
The biggest build the week ended January 23 occurred on the USGC, where stocks built 5.5 million barrels to 202.3 million barrels.
Inventory at Cushing, Oklahoma — delivery point for the New York Mercantile Exchange (NYMEX) crude oil futures contract — has increased the last eight weeks.
Stocks there grew 2 million barrels to 38.9 million barrels the week ended January 23. Current levels are still below year-ago levels, but that gap has been closing.
Storage can be profitable as long as the time spread covers the costs. Several analysts peg Cushing’s monthly storage at 50 cents/b, meaning the front-month/12th-month spread would need to be at least $6/b.
The NYMEX front-month/12th-month spread settled at minus $9.20/b Tuesday, widening from minus 55 cents/b on November 3. Last year, the spread was in backwardation**, closing at plus $8.44/b January 28.
PRODUCT STOCKS FALL
Even though refineries increased crude oil run rates, refined product stocks fell the week ended January 23.
U.S. distillate stocks decreased 3.9 million barrels to 132.7 million barrels. Analysts had expected a 580,000-barrel draw.
Combined stocks of low- and ultra-low-sulfur diesel (ULSD) in the USGC dropped 2.8 million barrels to 37.3 million barrels, flipping from a surplus to a 2.3% deficit to the EIA five-year (2010-2014) average.
U.S. Midwest (USMW) combined stocks decreased 771,000 barrels to 31.4 million barrels. U.S. Atlantic Coast (USAC) combined stocks were 91,000 barrels higher at 30.8 million barrels, mitigating the decline.
U.S. gasoline stocks shrunk 2.6 million barrels, compared with analysts’ expectations of an 830,000-barrel increase.
At 238.3 million barrels, gasoline stocks represent a 3% surplus to the five-year average.
Implied*** gasoline demand rose 171,000 b/d to 9 million b/d. For the same reporting period, implied demand’s highest level since 2010 was 8.6 million b/d.
By region, USAC stocks dipped 1.7 million barrels to 64.3 million barrels, which was 1.7% below the five-year average.
USMW gasoline stocks were 200,000 barrels higher at 52.8 million barrels, a 2.3% deficit to the five-year average. USGC stocks decreased 353,000 barrels to 81 million barrels, which was 6% above the five-year average.
* Contango is the industry vernacular for the condition whereby prices for nearby delivery are lower than prices for future-month delivery.
** Backwardation is the industry vernacular for the condition whereby prices for nearby delivery are higher than prices for future-month delivery.
*** Implied demand is the amount of product that moves through the U.S. distribution system, not actual end consumption.