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US refined products build likely to continue as refinery runs remain strong: analysts

The buildup in US refined product stocks likely continued last week as refinery runs held substantially above historic averages, according to analysts surveyed by S&P Global Platts.

Nationwide gasoline stocks likely rose 2.9 million barrels to around 258.5 million barrels in the week that ended January 18, a consensus of the analysts surveyed showed. Distillate stocks were expected by analysts to increase 900,000 barrels to around 143.9 million barrels last week.

The expected gasoline build would mark the eighth consecutive inventory increase and would push stocks to nearly 5.8% above the five-year average, according to US Energy Information Administration data.

An expected fifth straight distillate build would put stocks less than 1% below the five-year average. A steady increase has pared the deficit to the five-year average from a peak of nearly 11% in mid-December.

But the pace of refined product inventory builds has notably slowed.

Last week’s gasoline stocks increase was expected to be the smallest since mid-December and less than half the more than 7.5-million barrel jump EIA reported for the week prior. The expected distillate build was also the smallest in four weeks and less than a third of a nearly 3 million barrel build in the week that ended January 11.

Refiners likely dialed back run rates by 0.2 percentage points to around 94.4% of total capacity, analysts said. While the expected decline would put utilization rates 2.8 percentage points lower than a late December peak, likely contributing in part to the slower product build, run rates remain historically very strong. Last week’s dip would put nationwide utilization 3.5 percentage points above the year-ago level and more than 7.5% above the five-year average.

The budding gasoline supply overhang has begun to weigh on refining cracks.

NYMEX front-month gasoline cracks dropped to average $7.26/b in the week that ended January 18, compared with $7.50/b a week earlier. But distillate cracks are steady, even as stocks have reverted to the average. The NYMEX New York Harbor ULSD crack averaged $26.96/b last week, slightly stronger than $26.92/b in the week prior.

While there are strong refiner incentives for producing distillate fuels, it is likely strong demand kept stock builds in check last week. EIA data show end-user demand for distillate fuel spiked to 4.45 million b/d in the week that ended January 11, more than 10% above the five-year average, amid a cold snap along the Atlantic Coast.

Continued below-average temperatures along the Atlantic Coast last week likely maintained this level of demand. New York City totaled 243 heating degree days during the seven-day period that ended January 18, up from 199 heating degree days in the week prior, according to National Oceanic and Atmospheric Administration data.

US commercial crude stocks were expected to decline roughly 600,000 barrels last week to around 436.5 million barrels, according to analysts surveyed.

While historically strong refinery utilization likely contributed to some of the crude draw last week, an expected sharp uptick in exports likely also played a large role in driving storage levels lower.

Data from S&P Global Platts cFlow trade flow software shows crude exports averaging nearly 3.197 million b/d last week, just shy of the EIA-reported all-time high of 3.203 million b/d in late November.

The rise in export activity comes amid marginally stronger export economics. The ICE WTI/Brent spread, which averaged at $8.53/b last week, has broadly widened since falling to a four-month low of $6.87/b on December 28.

US exports to Europe have accordingly marched steadily higher in line with the recovering spread. Last week, trans-Atlantic volumes reached 8.6 million barrels, up nearly 7% from 8.05 million barrels in the week prior, cFlow data show.

Exports to Asia also increased last week, with 7.55 million barrels heading eastward last week compared with 5.4 million barrels in the week that ended January 11.
Source: Platts

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