US crude stocks show counter-seasonal draw amid strong refinery demand
US crude supply contracted counter-seasonally last week amid stronger-than-normal refinery demand, US Energy Information Administration data showed.
US commercial crude stocks fell 400,000 barrels to 428.11 million barrels during the week-ended January 17, EIA data showed. The draw ran counter to both the prevailing seasonal trend and analyst expectations of a 500,000-barrel build in an S&P Global Platts survey Tuesday.
The EIA weekly petroleum status report was delayed to Thursday due to a Monday federal holiday.
Crude inventories fell to 1.1% under the five-year average for this time of year, opening the widest supply deficit to the average since March.
US crude supply typically begins building in mid-January as refiners idle units for seasonal maintenance, but refinery crude demand this year has remained unseasonably strong. Total refinery utilization rates slipped 1.7 percentage points to an eight-week low 90.5% of total capacity last week, but total net crude inputs were down just 120,000 b/d at 16.86 million b/d; fully 4.5% above the five-year average.
Still, total offline crude distillation capacity was at the highest last week since mid-November at 2.23 million b/d, S&P Global Platts Analytics data showed, and is expected to continue to increase into February as refiners take units offline for shoulder season maintenance.
Notably the bulk of the crude draw manifested at Cushing, Oklahoma, the delivery point of the NYMEX crude contract, where stocks moved 960,000 barrels lower last week to 34.88 million barrels, the lowest since November 2018.
In contrast, US Gulf Coast crude stocks were up 820,000 barrels at 219.25 million barrels, despite exports holding mostly steady at 3.42 million b/d.
US crude production was steady at record-high 13 million b/d last week, and the build out of trans-Texas pipeline infrastructure allows much of this output to flow directly to USGC export terminals, bypassing Cushing and possibly accounting for the divergence in regional inventory levels. The Platts Midland-Cushing WTI spread has narrowed to around 60 cents/b in recent days, the weakest spread since late-October.
A surge in refined product demand blunted an expected gasoline build and pushed distillate stocks lower last week.
Total US gasoline inventories increased 1.75 million barrels to 260.03 million barrels, paring stocks to 4.6% above the five-year average from 5.5% the week prior.
Nationwide distillate stocks drew 1.19 million barrels to 146.04 million barrels, running counter to analyst expectations of a 1.6 million barrel build in Platts’ Tuesday survey.
Total product supplied, a proxy for demand, was up 2.46 million b/d to 21.5 million b/d, more than 6.5% above the five-year average. The surge was led by a 1.2 million b/d uptick in distillate supplied, due in part to colder weather setting in across the Northeast last week.
USGC PRODUCT STOCK GLUT EXPANDS
Refined product inventories on the USGC padded a supply overhang last week as closed export and pipeline arbitrages left refiners with little choice beyond storage.
USGC combined low- and ultra-low sulfur diesel stocks edged 90,000 barrels lower last week to 41.42 million barrels, but were still near two-year highs and more than 10% above the five-year average. Regional gasoline stocks surged 970,000 barrels to a fresh all-time high 95.31 million barrels.
Platts USGC ULSD pipeline differentials to NYMEX futures fell to minus 11.25 cents/gal last week, the widest discount since December 2018. Gasoline pipeline discounts to NYMEX fell to one-month lows at around minus 7.5 cents/gal.
The Colonial Pipeline distillates-only Line 2, which carries USG product to the US Atlantic Coast, is allocated for the first seven cycles of 2020. Colonial Pipeline also issued an allocation for eighth cycle on its Line 3 last week, marking the first time the line has been allocated since 2016. Due to the allocations, there is no chance for surplus product to be sent from the Gulf to New York Harbor via pipeline.
Instead, some suppliers are seeking Jones Act tonnage to ship product up to USAC markets. The US Jones Act requires inter-US shipments be made with US-built, flagged and crewed vessels that typically are uneconomical for USGC-USAC movements due to their higher premiums.