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Analysis: US gasoline stocks likely build as COVID-19 lockdowns crater demand

US gasoline inventories likely showed a counter-seasonal build last week as COVID-19 pandemic containment efforts created a historic demand slowdown, an S&P Global Platts analysis showed.

Total gasoline stocks are expected to have climbed 3.6 million barrels to around 242.9 million barrels during the week ended March 27, analysts surveyed by Platts said.

The expected build would snap eight consecutive weeks of draws and put stocks 2.4% above the five-year average of US Energy Information Administration data.

Gasoline stocks typically draw through late April as shoulder-season refinery maintenance weighs on production. But the nationwide proliferation of state and local governments issuing lockdown orders urging non-essential workers to remain home has created an unprecedented slowdown in end-user demand.

At least 29 US states have issued blanket “stay-at-home” orders, and partial orders are present in at least 13 others, according to media reports. At least 248 million people are facing government requests that non-essential workers remain home.

Road monitoring suggests travel may be down by roughly 50% in “at risk” areas, S&P Global Platts Analytics analysts said, adding nationwide gasoline demand could be down as much as 25% last week.

US President Donald Trump on Sunday extended federal lockdown recommendations to April 30, suggesting product demand will languish well into spring.

Total product supplied for gasoline was down 860,000 b/d at 8.84 million b/d during the week ended March 20, EIA data showed, the biggest one-week demand slide since the category 5 Hurricane Dorian stalked the southern US Atlantic Coast in early September 2019.
DISTILLATE DRAW

At the moment, industrial product usage, such as overland trucking, has been excluded from the shutdowns, supporting distillate demand.

Total distillate inventories are expected to have slipped 600,000 barrels last week to around 123.8 million barrels, analysts said. This draw would be slightly larger than normal for late March, and would put inventories 11.3% behind the five-year average of EIA data, out from 11.1% the week prior.

But an expected economic slowdown resulting from the pandemic containment efforts is expected to soon blunt distillate demand, likely sending inventories higher in the coming weeks.

“As the economy falters and the virus spreads, we expect that demand in the industrial sector will also slow significantly,” Platts analytics said.
CUTTING RUNS

Refiners, including Phillips 66, ExxonMobil, Chevron and Suncor, are cutting runs in the face of the drastic cuts in gasoline demand. Gasoline cracks turned sharply negative last week as RBOB futures fell to all-time lows. The ICE May New York Harbor RBOB crack against Brent fell to minus $6.25/b last Monday, but by Friday the crack had clawed back to positive territory at 84 cents/b.

Analysts surveyed Monday were mixed in their outlook for refinery utilization last week. The survey average pointed to a modest 0.1 percentage point decline, putting utilization at around 87.2% of total capacity, but the response range showed expectations from a 1 percentage point decline to a 1.5 percentage point increase in utilization rates.
CRUDE STOCKS LIKELY BUILD AMID STRONG CONTANGO

US crude storages likely continued to march higher last week as a strong contango structure pushed barrels into storage.

Commercial inventories are expected to have added 4.6 million barrels last week, analysts said, climbing to around 460 million barrels.

WTI forward structure has significantly weakened this month amid as demand outlooks have collapsed amid the global spread of the COVID-19 pandemic. Year-ahead WTI futures averaged at more than $11/b premium to front-month last week, up from $8/b the week prior. On Monday, this contango opened to $15/b, the widest since December 2008.

Strong storage economics is expected to send record inflow volumes to storage hub at Cushing, Oklahoma, according to Platts Analytics. Ullage at Cushing is around 32 million barrels, but the expected rush to storage could potentially send volumes to tank-tops during May.
Source: Platts

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