Opinion

S&P Global Platts Preview of U.S. EIA Data: Likely to Show Crude Stocks Rose 2.5 Million Barrels


Smaller-than-usual builds in total US crude inventories combined with continued draws this winter at Cushing, Oklahoma (delivery point for NYMEX crude oil futures contracts), helped NYMEX crude futures find a bottom last week before turning higher, 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)

  • Crude stocks expected to rise 2.5 million barrels
  • Refinery utilization expected to decline 0.8 percentage points
  • Gasoline stocks expected to fall 800,000 barrels
  • Distillate stocks expected to draw 1.6 million barrels

 

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)

 

A downturn across the oil complex pulled front-month NYMEX crude off a three-year high set in late January before support emerged last week pushing prices back above $60/b.

Fresh calm in equity markets has also allayed concerns over inflation after US labor data sparked a risk-off rally earlier this month that enveloped a range of asset classes, including commodities and oil.

Despite three straight weekly builds, the surplus of US crude stocks to the five-year average has been reduced to 2.6%, compared with 25% in mid-September and 39% a year ago.

Analysts surveyed Tuesday by S&P Global Platts expect crude stocks increased 2.5 million barrels last week. For the same period, stocks rose by 3.5 million stocks on average from 2013-17.

At 422.1 million barrels, inventories have fallen by 113 million barrels from their peak in late March 2017, but they remain bloated relative to the period before 2015.

For the week ending February 9, crude stocks were still 28% above where they stood for the same period in 2014.

After having focused on the surplus to historical levels, traders may turn their attention to the amount of crude in storage on an absolute basis.

Stocks would need to decline about 55 million barrels to return to the upper end of the range seen prior to 2015.

The resumption of crude stock draws typically doesn't begin until late April when refinery demand accelerates ahead of the summer driving season.

Analysts expect refinery utilization fell by 0.8 percentage point to 89% of capacity. A year ago, the run rate equaled 84.3%.

The slowdown in refinery activity likely helped draw barrels of refined products from storage. Gasoline and distillate stocks are expected to have fallen by 800,000 barrels and 1.6 million barrels, respectively.

Refiners have been running relatively hard this winter, mitigating the size of builds. Crude runs have averaged 16.3 million b/d the last four weeks, which was 1 million b/d above the five-year average.

 

CUSHING KEEPS DRAINING

In addition, US crude exports have been elevated since mid-September, nearly doubling on average to 1.45 million b/d. 

S&P Global Platts Analytics estimated US crude exports were 1.208 million b/d last week. For the week prior, exports averaged 1.322 million b/d, according to the US Energy Information Administration.

A growing premium for Brent over WTI that began in August provided a big incentive for US producers to sell more crude abroad.

The ICE Brent/WTI spread topped $7/b December 26, but since then has come in sharply. The spread has been less than $4/b for most of this month.

Falling inventories at the NYMEX crude delivery point in Cushing have caused the spread to tighten.

Cushing stocks have drained 13 of the last 14 weeks by a cumulative 31.8 million barrels. At 32.667 million barrels, the amount of crude in tanks at Cushing equals its smallest amount since January 2015. 

The startup of new pipelines in late 2017 removed a bottleneck that diverted barrels from the booming Permian Basin to Cushing, allowing supply to more easily reach the Gulf Coast.

 

WCS DISCOUNTS

Reduced flows on the Keystone Pipeline, which ships Western Canadian heavy crude from Hardisty, Alberta, to Cushing, have also contributed to the string of draws.

TransCanada shut the pipeline November 16 after detecting a leak, and restarted it November 28 at reduced pressure.

During a quarterly earnings call last week, a TransCanada executive declined to provide a timeline for when the 600,000 b/d pipeline might return to normal operations, saying regulators would decide.

Problems with Keystone have also been felt upstream, causing Western Canadian Select crude to weaken sharply.

The differential for WCS at Hardisty was assessed Friday at the front-month NYMEX crude's calendar month average (WTI CMA) minus $28.05/b, versus minus $14.25/b on November 15.

The deep discount for WCS has become a "major challenge" for the oil industry in Canada, Alex Pourbaix, CEO of oil sands producer Cenovus Energy, said last week on an earnings call.

Cenovus plans to move more crude by rail from Alberta to the US Gulf Coast and West Coast to reduce exposure to the WCS discounts.

 

VLCC LOADS AT LOOP

Even though the ICE Brent/WTI spread has fallen under $4/b, US crude exports won't necessarily plummet given the outlook for domestic production and infrastructure available on the Gulf Coast.

The International Energy Agency said Tuesday that US oil production will grow 1.52 million b/d this year, predicting a "second wave" of shale growth amid shifts in trade patterns.

The IEA highlighted reports of a recent shipment of US condensate to the UAE, a deal that would have "seemed incredible" a few years ago, it noted, and "now it looks like the shape of things to come."

Another factor that could help US crude stay attractive to refiners abroad is the shift to using larger tankers, which cuts down on freight costs.

Louisiana Offshore Oil Port operator LOOP LLC said Sunday the first fully laden VLCC carrying US crude had been loaded.

LOOP is the only port in the US capable of VLCC exports. A pipeline was converted to become bidirectional, allowing for crude to also flow from an onshore marine terminal to the LOOP deepwater port 18 miles offshore.



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