Analysis of U.S. EIA data: Data bullish for ULSD crack spreads

New York - November 20, 2013

U.S. Energy Information Administration (EIA) data released Wednesday appeared bullish for ultra-low sulfur diesel (ULSD) crack spreads, as the agency reported a large drop in distillate inventories last week, and an uptick in crude stocks, according to a just-released Platts commentary following the government’s weekly report on crude oil stocks.

U.S. distillate inventories fell 4.8 million barrels to 112.54 million barrels, with the bulk of the decline -- 3.02 million barrels -- seen in the U.S. Gulf Coast (USGC). Of that USGC decline, 2.85 million barrels was ULSD.

Export demand for ULSD has been growing in recent years, with USGC the main suppliers. That demand has tightened inventories in the region. Combined, low and ultra-low sulfur diesel stocks the week ending November 15, were roughly 13% below the five-year average, the EIA data showed.

Midwest diesel stocks have also been shrinking. Combined, low sulfur and ULSD stocks at 23.99 million barrels were down 502,000 barrels on the week, and down 6.12 million barrels from September 20. Since September 20, stocks have fallen from 2% surplus to the five-year average to a 7% deficit, the EIA data showed.

Combined diesel stocks on the U.S. Atlantic Coast (USAC) last week at 24.82 million barrels were 3% above the five-year average. Still, that was down from a 21% surplus the week ending September 13, when stocks were 8.2 million barrels higher. This could prove supportive for the New York-delivered New York Mercantile Exchange (NYMEX) ULSD futures contracts.

The NYMEX ULSD crack spread against ICE Brent closed Tuesday at $15.15 per barrel (/b), and was trading at roughly $15.74/b midday Wednesday.

Physical market ULSD crack spreads are even stronger, owing to price discounts for North American crudes. For example, the USGC ULSD crack spread against Light Louisiana Sweet closed at $21.31/b Tuesday, and the ULSD crack against Mars at $27.71/b, according to Platts data.

U.S. and Canadian crudes remain at discounts to Brent-related grades because of the growing North American production. The EIA showed U.S. production at 7.97 million b/d the week ending November 15, up from 6.71 million b/d the same week in 2012.

U.S. crude imports of 7.86 million b/d last week were up 19,000 b/d on the week and little changed year-over-year. That's because, while imports have been backed out of the USGC and USAC, the Midwest has been importing more Canadian barrels.

Total U.S. imports of Canadian crude climbed 53,000 b/d last week to 2.44 million b/d, the EIA's preliminary data showed.

USAC crude imports of 422,000 b/d the week ending November 15 were down 152,000 b/d year-over-year, and the lowest since the EIA began reporting the weekly data in January 1990. USAC refiners have been increasingly railing in Bakken crude from North Dakota, displacing West African barrels.

Total U.S. crude imports from Nigeria were 68,000 barrels per day (b/d) last week, and imports from Angola were 57,000 b/d, the EIA's data showed.

USGC crude imports last week of 4.1 million b/d were down 121,000 b/d from 2012, but Midwest imports of 1.84 million b/d were up 338,000 b/d.

USGC refiners boosted net crude inputs last week by 133,000 b/d to 8.069 million b/d. With U.S. West Coast (USWC) and Midwest net inputs declining, total U.S. inputs were up 36,000 b/d at 15.45 million b/d.

With USGC imports down, and inputs up, crude stocks in the region fell 3.63 million barrels last week to 192.49 million barrels.

Midwest stocks, however, jumped 2.26 million barrels to 110.47 million barrels, while USWC stocks were up 1.57 million barrels at 53.75 million barrels.

Despite the USGC crude stock draw, the region was left with a 12% surplus to the five-year average, up from a slight deficit in mid-August.

Midwest stocks last week were 25% above the five-year average. Stocks at the NYMEX crude oil futures contract delivery point -- Cushing, Oklahoma -- at 39.94 million barrels were up 7.32 million barrels over the past six weeks, and at a 27% surplus to the five-year average.

U.S. gasoline stocks fell 350,000 barrels last week t0 208.9 million barrels, with the largest decline -- 731,000 b/d -- seen on the USGC.

Stocks on the USAC -- home of the New York delivery point for NYMEX RBOB -- fell 394,000 barrels to 52.42 million barrels. That left inventories at a 4% surplus to the five-year average. A 1.2 million-barrel draw in Midwest stocks and incremental declines in other regions were mostly offset by a 1.5 million-barrel build on the USGC.

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

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