Production disruptions in the U.S. Gulf of Mexico because of Hurricane Nate likely kept alive a streak of U.S. crude oil inventories declines that have helped keep a floor under New York Mercantile Exchange (NYMEX) crude prices, 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 oil stocks expected to drop 3.9 million barrels
· Gasoline stocks expected to fall 340,000 barrels
· Distillate stocks expected to decline 2 million barrels
· Refinery utilization expected to ebb 0.7 percentage points
S&P Global Platts Analysis by S&P Global Platts Oil Futures Editor Geoffrey Craig:
Prompt-month crude oil prices fell a week ago to around $49 per barrel (/b), or the bottom end of the past month's trading range, before bouncing to find traction in the low-$50s/b on market concerns of increased geopolitical risk.
President Donald Trump's repudiation of the 2015 nuclear deal with Iran, combined with Iraqi forces' seizure of control of oil fields in northern Iraq from Kurdish forces have raised prospects of less oil supply hitting the market.
However, some in the market see the forces behind oil inventory drawdowns temporary in nature.
Analysts surveyed Monday by S&P Global Platts expect crude oil inventories to show a 3.9-million-barrel decline for the latest reporting week. This compares to the 2012-2016 historical average build for this period of 3.34 million barrels, according to EIA data.
One of the most recent catalysts for inventory reduction-- a sharp reduction in Gulf of Mexico production – proved temporary, as output nearly recovered in full by the end of last week, given that no real damage was reported to oil infrastructure following recent hurricanes.
As a hurricane/tropical storm precaution, some offshore personnel were evacuated, which did cause a shut-in of production of more than 1 million b/d from October 6 through October 10, according to the Bureau of Safety and Environmental Enforcement.
The high point came October 8 when 1.62 million b/d was shut-in, which equaled 92.6% of total production in the Gulf of Mexico. By Friday, however, that figure had fallen below 1%, BSEE said.
Once the memory of Hurricane Nate recedes, U.S. production is likely to resume its trend of moving higher.
Production stood at 9.561 million b/d in late September, the most since July 2015, according to EIA weekly estimates. EIA's latest projections put output above 10 million b/d by November 2018.
U.S. CRUDE STAKES OUT EUROPE, ASIA
Unlike Hurricane Nate, the more meaningful impact from Hurricane Harvey was the paralysis of U.S. Gulf Coast (USGC) ports and refinery activity for several few weeks starting late August.
The closure and subsequent reopening of USGC ports led to a contraction and then jump in both imports and exports, partly negating the impact either one has had on weekly crude stock movements.
ANOTHER DISTILLATE DRAWDOWN LIKELY
The other major disruption from Harvey was seen in Gulf Coast refinery utilization, which hit a low point of 60.7% the week ending September 8, but has rebounded to 88.5% the week ending October 6.
That has helped counter the seasonal decline in Midwest activity, pushing the total run rate up to 89.2% of capacity.
Analysts expect the utilization rate fell 0.7 percentage points last week to 88.5%. If confirmed, that would still exceed the year-ago level of 85% when the turnaround season was underway.
One question facing the market is whether some refiners have postponed planned repairs until later this autumn with crack spreads remaining elevated since Harvey struck.
For example, The NYMEX ultra-low sulfur diesel (ULSD) crack spread against West Texas Intermediate (WTI) was above $24/b Monday, compared with a range of $15/b-$17/b in October 2016.
After six straight weekly declines, U.S. distillates stocks sit at 133.959 million barrels, which is 17.2% below last year at this time and 1% below the five-year average, according to Energy Information Administration data.
Analysts are looking for distillate stocks to have fallen 2 million barrels last week. The five-year average shows a decline of nearly 1.4 million barrels for the same period.
In the Midwest, stocks of low- and ULSD diesel have been near parity or at a slight deficit to the five-year average for the last four weeks amid strong demand because of the autumn harvest.
Another factor has been Midwest refinery utilization, which has dropped for six straight weeks to 88.4% with a number of facilities offline for planned repairs. The latest facility heard to have closed was ExxonMobil's 238,600 b/d refinery in Joliet, Illinois.
These factors have helped lift prices in the physical market, with Chicago ULSD assessed Friday by Platts at NYMEX November ULSD plus 10.75 cents/gal Friday, the largest premium since November 2015.
MIDWEST GASOLINE STOCKS TIGHT
Seasonal refinery work also strengthened Midwest gasoline differentials last week to their highest levels since shortly after Harvey made landfall.
The differential for suboctane in Tulsa, Oklahoma to NYMEX November RBOB* climbed five straight days to plus 10.5 cents/gal Friday, the highest since September 5, according to Platts' assessments.
At 49.766 million barrels, Midwest gasoline stocks have fallen to their lowest level since December, although they remain at a surplus of 2.9% to the five-year average.
Total gasoline stocks sit 3.6% above the five-year average at 221.426 million barrels after rising by a total of 5.2 million barrels over the last three weeks through October 6.
Gasoline inventories are normally little-changed this time of year. Analysts are looking for a decline of 340,000 barrels last week, versus an average increase of 240,000 barrels from 2012-16.
A fire broke out Wednesday at the 190,000 b/d refinery in Trainer, Pennsylvania, owned by Monroe Energy, a subsidiary of Delta Air Lines, interrupting operations.
The fire was quickly extinguished, but the news lifted gasoline values on the Laurel Pipeline, which is fed by the Trainer plant, to a premium to barrels on the nearby Buckeye line for the first time since March.
* Reformulated blend stock for oxygenate blending (RBOB) futures contract, the biggest premium to the front-month contract since late August.
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