With U.S. gasoline stocks sitting above the five-year average, supply appears ample even before U.S. refinery activity begins to ramp higher when planned repairs conclude and peak summer demand approaches, 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)
Ample inventory has weighed on the NYMEX RBOB* crack spread, which is trailing the recent historical average for this time of year.
A softer crack could even emerge as a bearish factor for the entire oil complex, dragging crude futures lower, unless the gasoline market tightens.
Analysts surveyed Monday by S&P Global Platts expect gasoline stocks to show a decline of 1.3 million barrels for the reporting week ended last Friday. For the same period from 2013 through 2017, the average decline in inventories was 2.7 million barrels.
In late January, gasoline stocks fell to a deficit of 0.7% to the five-year average, but since then the cushion has grown. Inventories equaled a surplus of 4.8% the week ending March 3.
At 251 million barrels, gasoline stocks were 1.69 million barrels above the level from a year ago, the first time this year that the year-on-year comparison has been a surplus.
The NYMEX RBOB crack spread against WTI topped $24 per barrel (/b) February 28, but immediately slimmed. To date this month, the crack spread has averaged $18.49/b, which compares to an average of $22.69/b for the period of 2015-17.
One factor helping supporting the crack spread has been tighter supply conditions relative to the rest of the country on the U.S. Atlantic Coast (USAC), home to the New York Harbor-delivered NYMEX RBOB contract.
USAC stocks are currently 5.6% less than the five-year average, at 61.8 million barrels. This follows a large drawdown of 3.388 million barrels for the week ended March 2.
In the physical market, the New York Harbor gasoline price strengthened sharply last week on the same day that Energy Information Administration data was released.
Cash RBOB at 13.5 RVP was assessed Wednesday at NYMEX April RBOB minus 16.75 cents per gallon (/gal), compared to the Tuesday assessment of minus 18.50 cents/gal. That was the largest day-on-day move since August 31 in the aftermath of Hurricane Harvey.
However, more gasoline supply appears to be on the way. Supply totaling 994,000 metric tons (mt) from Northwest Europe is due to land in March, compared with 573,000 mt in February, according to S&P Global Platts trade flow software cFlow.
That represents the largest monthly shipment since September. As of last week, nine tankers were spotted in transit, of which a pair was headed for Canada, six were going to the U.S. East Coast, and one to Houston.
ULSD crack also below five-year average
The relative weakness of the NYMEX RBOB crack can also be measured relative to the NYMEX ultra-low, sulfur diesel (ULSD) crack.
The transition to April as the front-month contract typically boosts the RBOB crack above the ULSD crack because of the switch to cleaner-burning gasoline specifications.
The RBOB crack has averaged a premium of 2.3 cents/gal to the ULSD crack since February 28. But that compares with an average premium of 8.1 cents/gal from 2013-17 during the same period.
Nor can diesel strength account for that difference. The NYMEX ULSD crack has averaged $17.48/b this month, trailing the five-year average by $5.12/b. US distillate stocks sit 0.4% above the five-year average at 137.426 million barrels for the week ended March 2.
Analysts are looking for a draw last week of 1.4 million barrels, which would top the 1.1 million-barrel decline seen on average from 2013-17.
Are Cushing builds coming soon?
One factor likely contributing to the expected declines in gasoline and distillate stocks was refinery activity.
Analysts are looking for utilization to have dropped 0.4 percentage points last week to 87.6% of capacity. A year ago, utilization was 89%.
A likely pickup in refinery utilization later this month should eventually kick start a period of seasonal drawdowns in crude stocks.
Crude inventories have built five of the last six weeks by 14.3 million barrels to 425.91 million barrels, according to EIA data.
Analysts expect crude stocks increased 2.5 million barrels last week, versus an average build of 3.8 million barrels.
If confirmed, that would nearly erase the surplus of current inventories to the five-year average, which stood at just 0.4% the week ended March 2.
Another key headline will be whether inventories continue to fall at the NYMEX crude delivery point in Cushing, Oklahoma.
Cushing stocks have drawn 16 of the last 17 weeks to 28.18 million barrels, the fewest since December 2014.
However, the week ended March 2 saw a draw of just 605,000 barrels. That was the smallest draw over that 17-week stretch.
S&P Global Platts Analytics estimates a draw of 450,000 barrels last week at Cushing, but cautioned that the return of builds is quickly coming.
Cushing draws helped flip NYMEX crude's M1/M2 spread into backwardation in January for the first time since late 2014.
But with the tide perhaps shifting, the M1/M2 spread has almost returned to contango. That spread was backwardated 3 cents/b Monday afternoon, in from 12 cents/b Friday.
* Reformulated blend stock for oxygenate blending (RBOB) futures contract, the biggest premium to the front-month contract since late August.
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