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Analysis: Strong exports, refinery demand temper seasonal crude build

US crude inventories fell further behind the five-year average last week as a surge in exports and an uptick in refiner demand blunted a seasonal stock build, US Energy Information Administration data showed Thursday.

US commercial crude inventories climbed 410,000 barrels to 442.88 million barrels during the week ended February 14, EIA data showed. The modest build put stocks nearly 2% behind the five-year average for this time of year, widening the deficit from 1.5% the week prior.

US crude inventories have steadily lost ground against historic levels since early December, when they were more than 3% above the five-year average. This trend is predicated in large part on consistently strong exports, which averaged over 3.4 million b/d during this period.

Crude stocks typically build at this time of year as shoulder season refinery maintenance weighs on crude demand. EIA data shows that inventories historically increase around 2.5 million barrels in the second week of February. But strong exports, which last week jumped 590,000 b/d to a seven-week high 3.56 million b/d, are distorting this seasonal trend.

An unseasonal increase in refinery utilization and net crude inputs also blunted the expected crude build. Total utilization climbed 1.4 points last week to 89.4% of capacity, and net crude inputs were up 190,000 b/d on the week at 16.21 million b/d. Net crude demand marked a fresh five-year high for mid-February and was 3.77% stronger than the five-year average last week.

But crude stocks, which typically build through mid-April, could see an additional boost in coming weeks as exports face headwinds.

Chinese refineries have slashed throughputs in response to a collapse in local refined product demand due to the Covid-19 coronavirus outbreak. Some refiners have begun booking cargoes for April and May delivery, but the outbreak is likely to weigh heavily on near-term shipments.

Contango in crude forward curves is further incentivizing the use of VLCCs as floating storage. Forward curves for global benchmarks have generally strengthened in the past week, but NYMEX WTI futures were still in contango though first six months on Thursday.

While China has not directly purchased US crude in significant volumes since September, barrels displaced from Chinese markets may directly block US exports into Europe. Indeed, some of these barrels may even flow directly to US storages in coming weeks as several Latin American cargoes once destined for China are being heard offered at distressed prices to refiners on the US West and Gulf Coasts.

BAYWAY OUTAGE STRESSES USAC GASOLINE STOCKS
Total US gasoline stocks fell for a third straight week, declining 1.97 million barrels to 259.08 million barrels, EIA data showed. The draw narrowed the surplus to the five-year average to just 2.4% – the weakest since mid-November. But inventories are still notably less than 1% off of all-time high levels in late January.

Gasoline inventories in the high-demand US Atlantic Coast fell 850,000 barrels lower to 66.5 million barrels due in part to the unplanned shutdown of the 145,000 b/d fluid catalytic cracking unit at Phillips 66’s Bayway refinery in Linden, New Jersey earlier this month. The gasoline-producing unit will be offline for 30 days for the repair of a leak discovered on February 6.

USAC inventories fell 4.8% behind the five-year average last week, the widest deficit since late July, in the teeth of the summer driving season.

Strong USAC demand gasoline demand from the US Gulf has shifted the structure for the next six Colonial Pipeline shipping cycles for CBOB and regular finished gasoline into backwardation for the first time since late November.

The outage could draw more waterborne imports as well. The arbitrage incentive for moving gasoline into the US Atlantic Coast from Northwest Europe averaged at around $1.85/b last week, up sharply from an average incentive of 22 cents/b in January and nearly a dollar stronger than year-ago February levels, Platts Analytics data showed.

Nationwide distillate stocks moved 640,000 barrels lower last week to 140.59 million barrels, narrowing to the gap to the five-year average by around 1 percentage point to 4%
Source: Platts

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