Analysis of U.S. EIA data: U.S. crude oil stocks rose 3 million barrels as production hit near 25-year high


New York - November 27, 2013


U.S. commercial crude oil stocks rose 3 million barrels last week as domestic production topped 8 million barrels per day (b/d) for the first time since January 1989, according to data Wednesday from the U.S. Energy Information Administration (EIA). Meanwhile, distillate inventories continued to decline, further adding to the fuel's deficit to the five-year average.


For the first time in nearly 25 years U.S. crude oil production was above 8 million b/d, hitting 8.02 million b/d for the week ended November 22.


At 391.4 million barrels last week, U.S. crude oil stocks were 13.3%, or about 46 million barrels above the EIA's five-year average. Analysts polled by Platts were anticipating a 1.5 million-barrel draw in crude oil inventories on expectations that refiners would be returning to higher production levels, back from a longer-than-usual maintenance period.


U.S. refiners did raise utilization rates by 0.8 percentage points to 89.4% of capacity last week, with the exception of the US Gulf Coast where run rates declined 0.7 percentage points to 89.9% of capacity.


Refinery utilization rates had been on the rise in the Gulf Coast during the prior three weeks, but likely fell last week after Motiva reportedly began maintenance at its 600,000-b/d refinery in Port Arthur, Texas, on November 19.


A spokeswoman for operator Shell confirmed the report but declined to elaborate on how long the maintenance will last or which units are involved.


The bulk of the increase in crude oil stocks was from a 1.9 million-barrel rise in inventories in the Gulf Coast. West coast crude stocks were up 1.1 million barrels and in the Midwest stocks rose 900,000 barrels.


At the New York Mercantile Exchange (NYMEX) oil futures contracts delivery hub at Cushing, Oklahoma, crude stocks rose for the seventh consecutive week, up 700,000 barrels to 40.6 million barrels. The build marks the first time stocks were above 40 million barrels since late July.


U.S. crude imports fell 145,000 b/d to 7.72 million b/d last week. A 278,000-b/d decline in the Gulf Coast was slightly offset by a 184,000 b/d rise in Midwest imports.


Canadian crude oil imports of 2.67 million b/d last week, up 221,000 b/d from the prior week, were offset by a 298,000 b/d decline to 1.45 million b/d in imports from Saudi Arabia.


SURGING PRODUCTION KEEPS BRENT AT PREMIUM; ULSD DRAWS


The continued rise in U.S. production has kept U.S. crude oils at a growing discount to Brent-related grades.


In the futures market, the front-month Brent/West Texas Intermediate (WTI) spread widened to an eight-month high of $18.77 per barrel (/b) Wednesday -- marking the sixth consecutive trading session that the spread has firmed.


In the cash market, Dated Brent firmed to a $14.84/b premium to Louisiana Light Sweet (LLS) as of Tuesday. That's up from a $2.49/b premium on October 1.


The growing supplies of domestic crude oil, while weighing on the price of regional grades, have worked to boost cracking margins, mainly in the Gulf Coast.


The cracking margin for ultra-low sulfur diesel (ULSD), basis Bakken, on the Gulf Coast rose to $28.49/b on Tuesday -- up about 20% since November 1.


Stocks of U.S. distillates fell 1.7 million barrels to 110.9 million barrels last week, EIA data showed, putting the fuel at a 21.2% deficit to the EIA five-year average of 140.6 million barrels.


Total ULSD stocks fell to an 11-month low of 88.12 million barrels, from 90.38 million barrels the week prior.


On the Gulf Coast, combined ULSD and low sulfur (LS) stocks rose 207,000 barrels to 30.7 million barrels last week, but were still at a deficit to the EIA's five-year average of 34.46 million barrels.


With expectations that the U.S. has continued to export distillate fuel at a steady pace, analysts think that will likely offset a rush to build stocks heading into the winter season.


On the U.S. Atlantic Coast, combined ULSD and LS stocks dipped 1.8 million barrels to 23.03 million barrels last week, EIA data showed, dropping stocks to a deficit to the EIA five-year average, at 7.64%, for the first time in eight months.


U.S. gasoline stocks rose 1.8 million barrels to 210.6 million barrels last week, slightly higher than expectations of a 1 million-barrel build.


Implied* demand for gasoline fell a marginal 14,000 b/d to 8.91 million b/d. However, demand was still above year ago levels, up 483,000 b/d from the same reporting week in 2012.


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


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