Analysis of U.S. EIA data: U.S. crude oil stocks drop nearly 7 million barrels for a third straight weekly decline

New York - July 17, 2013

The sharp reduction in U.S. commercial crude oil inventories continued apace for the reporting week ended July 12, with stocks falling an additional 6.9 million barrels to just over 367 million barrels, Energy Information Administration (EIA) data showed Wednesday.

Crude oil stocks have fallen a cumulative 27 million barrels during the past three weeks, from just over 394 million barrels for the reporting week ended June 21.

Despite the declines, U.S. crude oil stocks are still nearly 6.5% above the five-year average of EIA data.

Analysts surveyed Monday had been expecting a 2.5 million-barrel draw.

The draw was likely a product of continued strong crude oil runs at U.S. refineries, despite an uptick in imports. While crude oil runs at U.S. refineries have been surging, imports have been below seasonal norms.

U.S. crude oil runs increased 119,000 barrels per day (b/d) to 16.24 million b/d. Runs have averaged more than 16 million b/d for the past three reporting periods, levels not seen since July 2007, prior to the recession.

The boost in crude oil runs helped increase U.S. refinery utilization rates 0.4 percentage point to 92.8% of capacity. Analysts had been expecting a 0.2 percentage-point decline.

Crude oil stocks plummeted in the U.S. Gulf Coast (USGC) region, where they fell 6.1 million barrels to 175.33 million barrels, as regional crude oil runs rose 21,000 b/d to 8.52 million b/d. Yet crude oil imports to the USGC actually rose 132,000 b/d to 3.56 million b/d.

Crude oil imports from Venezuela jumped 475,000 b/d to 918,000 b/d, although imports from Colombia fell 483,000 b/d to 345,000 b/d, the EIA data showed.

Crude oil imports from Saudi Arabia climbed 218,000 b/d to 1.55 million b/d.

Total U.S. crude oil imports rose 180,000 b/d to 7.71 million b/d during the week ended July 12, but are down from around 9.6 million b/d for the comparable week last year.

Stocks also fell in the Midwest, down 1.41 million barrels to 110.23 million barrels, as crude oil runs jumped 110,000 b/d to 3.56 million b/d. This is the highest Midwest crude oil runs have been since last August.

Stocks at Cushing, Oklahoma – the delivery point for the New York Mercantile Exchange (NYMEX) crude oil futures contract – fell a bullish 882,000 barrels to 46.08 million barrels during the week ended July 12.

Canadian imports, many of which head to the Midwest, were up 143,000 b/d at 2.5 million b/d, recovering from a drop below 2 million b/d in early June.

Domestic crude oil production rose 89,000 b/d to 7.49 million b/d during the week ended July 12, led by a 93,000 b/d increase in production in the lower 48 states.

Meanwhile, U.S. gasoline stocks rose 3.06 million barrels to 224.03 million barrels during the week ended July 12, led by a 2.06 million-barrel build on the USGC. Stocks on the U.S. Atlantic Coast (USAC) – home of the New York Harbor-delivered NYMEX RBOB contract – fell 159,000 barrels to 62.48 million barrels.

USAC stocks are still amply supplied, but the surplus to the five-year average has narrowed in recent weeks. USAC stocks were 9.6% above the average as of the week ended July 12, down from 14% the week ended June 7.

The USGC is also well-supplied with stocks at 78.17 million barrels, or 8.7%, above the five-year average.

The boost to gasoline stocks is likely a product of a sharp reduction in implied demand*, which fell 570,000 b/d to 8.73 million b/d. Although on a four-week moving average, implied demand* for gasoline is relatively steady, just over 9 million b/d.

That said, a decline in exports – for which the EIA does not update on a weekly basis – could also explain the stock increase.

U.S. gasoline blending and production fell sharply, down 539,000 b/d to 9.05 million b/d, but from elevated levels. Gasoline blending and production during the week ended July 5 was more than 9.5 million b/d – nearly 300,000 b/d above the five-year average.

USAC blending and production fell 160,000 b/d to 2.91 million b/d, the Midwest saw a decline of 183,000 b/d to 2.2 million b/d, and the USGC saw a decline of 177,000 b/d to 1.98 million b/d.

The declines were slightly offset by an increase in USAC gasoline imports, which rose 132,000 b/d to 717,000 b/d during the week ended July 12. This is the highest USAC gasoline imports have been in four weeks, EIA data showed.

The decrease in gasoline yields may come as a surprise considering the recent strength in gasoline crack spreads. But that strength is very recent. The NYMEX RBOB crack spread against IntercontinentalExchange (ICE) Brent only has been outperforming the ultra low sulfur diesel (ULSD) crack against Brent since July 10.

Likewise, on the USGC, the conventional gasoline crack against Light Louisiana Sweet crude oil averaged $16.78 per barrel (/b) during the week ended July 12, compared to a ULSD crack of $14.53/b. But that premium is an exception to the norm.

Over the longer term, U.S. refiners have been increasing their distillate yields to capture strong cracks via increased exports from the USGC. Distillate production at 5.08 million b/d during the week ended July 12 was the highest on record, driven by record high ULSD output.

In aggregate, U.S. distillate stocks rose a bearish 3.87 million barrels to 127.68 million barrels during the week ended July 12, more than double analysts’ expectations. USGC distillate stocks rose 1.1 million barrels to 4.78 million barrels during the week ended July 12.

Implied demand* for distillates – which does not include exports – fell 58,000 b/d to 4.051 million b/d on a four-week moving average.

* Implied demand is the amount of product that moves through the U.S. distribution system, not actual end consumption.

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