Consistent builds in crude oil inventories at Cushing, Oklahoma (delivery point for New York Mercantile Exchange or NYMEX oil futures), since early August have weighed on NYMEX crude futures, leading to a larger discount to Intercontinental Exchange (ICE) Brent, providing an incentive for U.S. crude oil exports, according to an S&P Global Platts preview of this week's pending U.S. Energy Information Administration (EIA) oil stocks data.
Survey of Analysts Results:
(The below may be attributed to the S&P Global Platts survey of analysts)
S&P Global Platts Analysis:
(The below may be quoted in part or full, with attribution to S&P Global Platts Oil Futures Editor Geoffrey Craig)
Stocks at Cushing, Oklahoma, have increased 11 of the last 13 weeks by 8 million barrels to 63.839 million barrels, the most since May, Energy Information Administration data showed.
This trend has been in stark contrast to total U.S. inventories, which for the same period have fallen by nearly 27 million barrels to 454.91 million barrels, the fewest since January 2016.
Analysts surveyed Monday by S&P Global Platts expect crude stocks fell 2.7 million barrels last week, compared with an average build of 1.3 million barrels for the same period from 2012-16.
If confirmed, it would mark the sixth draw in the last seven weeks, and further narrow the surplus to the five-year average, which equaled 14.6% in the week ended October 27, down from 25% in mid-September.
Tightening stocks have helped boost NYMEX crude oil futures prices, with the prompt-month contract topping $57/b Monday for the first time since July 2015.
Despite the rally, NYMEX crude's discount to ICE Brent has been $5-$7/b since early September, out from a maximum of $3/b from late 2015 until mid-August. The spread was around $6.50/b Monday afternoon.
One factor driving the spread has been rising Cushing stocks, which can be attributed to refinery maintenance in Oklahoma and output growth in the Permian Basin, according to S&P Global Platts Analytics.
"Over the next couple of months, refinery demand will pick up, a new pipeline from Cushing to Memphis will start up, and new pipes from West Texas to the coast will reduce shipments into Cushing," S&P Global Platts Analytics said. “"This will allow Cushing stocks to fall sharply, especially given the wide price differential between Cushing and Houston.”
Gulf Coast differentials have been boosted by strong export demand given the widening Brent/West Texas Intermediate (WTI) price spread.
Light Louisiana Sweet crude's premium to WTI Cushing averaged $6/b last week, up from $2.25/b in late July, according to Platts assessments. The spread between WTI MEH and WTI Cushing averaged $4.87/b last week, up from $1.65/b at the end of July.
The amount of crude shipped abroad jumped in the week ended September 22 by 563,000 barrels per day (b/d) to nearly 1.5 million b/d, and has remained elevated since.
U.S. crude exports have reached all-time highs on two occasions over the last six weeks, most recently the week ended October 27 at 2.133 million b/d, according to EIA data.
Exports likely fell last week, however. S&P Global Platts Analytics estimates U.S. exports averaged 1.621 million b/d in the week that ended November 3, based on data from cFlow, the S&P Global Platts trade-flow software.
S&P Global Platts Analytics pegs crude imports at 7.3 million b/d for the latest reporting week. According to its regression model, based on one-day lagged customs data, imports will likely be 7.669 million b/d.
Imports averaged 7.571 million b/d the week ending October 27, according to EIA.
PRODUCT DRAWS LIKELY
Analysts are looking for refinery utilization to have risen 0.5 percentage point to 88.6% of capacity last week.
If confirmed, that would mark the third straight weekly increase, and exceed the year-ago level by 1.5 percentage points.
Market participants will be keeping an eye on U.S. Gulf Coast (USGC) refinery demand, as further signs that the region has started ramping up after autumn maintenance should help pull barrels out of Cushing.
USGC crude runs have been above 8.6 million b/d in the last two weeks ended October 27. That is up from 8 million b/d in the week ended October 13, but still shy of pre-Hurricane Harvey levels above 9 million b/d.
More refinery activity puts upward pressure on product stocks, but gasoline and distillate inventories have actually been tightening.
Gasoline inventories have fallen by 9.485 million barrels over the last two reporting periods to 212.849 million barrels, a surplus to the five-year average of less than 1% for this time of year.
Distillate stocks have drawn eight of the last nine weeks by 20.2 million barrels to 128.921 million barrels, flipping from a surplus of 9.1% to the five-year average to a discount of 1%.
Analysts surveyed Monday by S&P Global Platts are looking for further declines. They expect a draw in gasoline stocks of 2.25 million barrels and a draw in distillate stocks of 1.85 million barrels.
RBOB RALLY UNDERWAY
Some refinery and pipeline problems, along with strong demand and soft imports, have helped strengthen the gasoline market, which can be seen in futures and cash markets.
Maintenance on the Explorer Pipeline, which ships refined products from the Gulf Coast to Chicago, caused barrels to be pulled away from the New York Harbor to western Pennsylvania to make up for the shortfall.
In refinery news, an fluid catalytic cracker (FCC) at the 326,700 b/d refinery in Deer Park, Texas, was shut last week. There was also a fire at ExxonMobil's 502,500 b/d refinery in Baton Rouge, Louisiana.
The four-week moving average for U.S. gasoline implied* demand has been above the five-year range since the week ended September 22.
U.S. Atlantic Coast gasoline imports have averaged 524,000 b/d over the last four weeks, which was 141,000 b/d below the year-ago level, helping put the region's stocks at a deficit of 2.5% to the five-year average.
Prompt NYMEX RBOB* was around $1.83/gal Monday afternoon, up 27 cents from a month ago. The New York Harbor spot RBOB market was assessed Friday by Platts at NYMEX December RBOB plus 7.95 cents/gal, its biggest premium since September 15.
** Reformulated blend stock for oxygenate blending (RBOB) futures contract, the biggest premium to the front-month contract since late August.
* Implied demand is the amount of product that moves through the U.S. distribution system, not actual end consumption.
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