Crude oil storage in the US is profitable again
Wednesday’s pivotal OPEC ministerial meeting could overshadow the release of weekly US inventory data that same day; however, a large enough change in US petroleum stocks could inject additional volatility into a market already on edge, according to an S&P Global Platts preview of this week’s pending US Energy Information Administration oil stocks data.
- Crude oil stocks expected to show a drawdown of 250,000 barrels
- Refinery utilization expected to rise 1.1 percentage points
- Gasoline stocks expected to increase 1 million barrels
- Distillate stocks expected to increase 1 million barrels
OPEC members are trying to finalize the first coordinated output cut since 2008.
Nevertheless, analysts surveyed Monday by S&P Global Platts expect crude inventories fell 250,000 barrels, compared with an average decline of 900,000 barrels for this time of year from 2011-15.
Refinery demand has accelerated after bottoming recently at 85 per cent of capacity in mid-Oct. The run rate is expected to have increased 1.1 percentage points for the latest reporting week to 91.9 per cent of capacity.
The return of refineries from seasonal maintenance has meant an increase in demand, with the amount of crude processed by facilities rising by more than 1 million b/d to nearly 16.4 million b/d.
Problems at a pair of large US Gulf Coast refiners might have prevented crude demand from picking up even more.
Phillips 66 was performing maintenance last week at its 247,000-b/d refinery in Belle Chasse, Louisiana, while Marathon Petroleum shut its 459,000-b/d Galveston Bay facility after it experienced steam loss.
While higher crude runs eat into crude stocks, strong imports can mitigate this to some degree. Crude imports have been above the year-ago levels for eight of the last 10 reporting periods.
One factor that could start luring additional barrels is storage economics.
The front-month-to-second-month contango has been wider for Intercontinental Exchange (ICE) Brent over NYMEX crude oil futures on a regular basis since the beginning of Oct.
However that price spread has nearly evaporated. On Monday afternoon, ICE Brent’s front-month/second-month spread was minus 93 cents/b, versus minus 89 cents/b for NYMEX crude.
The closing of the price gap has mostly been a function of NYMEX crude’s contango widening from around 50 cents/b two weeks ago.
A wide contango favors a physical trade of simultaneously buying crude oil and selling crude oil futures, which tends to lock in a profit so long as that price difference is enough to cover storage and miscellaneous costs.
“Storage in the U.S. . . . is profitable again,” energy economist Philip Verleger said in a research note this weekend. In fact, an even larger spread was available last week after NYMEX Dec. crude futures expired Nov. 21, he said.
A discount of more than $1/b existed between cash WTI for Dec. delivery and the Jan. futures contract, Verleger said.
“It should not surprise anyone, then, if inventories in the US jump sharply in the next week or two,” he said.
PRODUCT BUILDS
While the seasonal increase in US refinery utilization pulls crude stocks lower, the same force tends to push products higher.
Analysts expect US gasoline stocks rose 1 million barrels last week, compared with an average build of 1.6 million barrels for the same reporting period from 2011-15.
A spate of issues facing US Gulf Coast (USGC) refiners involving gasoline-making units could have dented production last week.
A fire broke out in the alkylation unit of ExxonMobil’s 502,500-b/d refinery in Baton Rouge, Louisiana. In addition, Phillips 66 shut a fluid catalytic cracking (FCC) unit at its 146,000 b/d Borger, Texas, refinery.
An FCC at Irving Oil’s 300,000 b/d refinery in Saint John, New Brunswick, went out of service last week. That refinery is a major supplier of gasoline to US markets.
Analysts are looking for a 1 million-barrel build in distillate inventories for the latest reporting week ended Friday, which would fall short of the 2.7 million-barrel build seen on average from 2011-15 for this time of year.
Distillate inventories have increased the last two reporting periods after having declined for seven straight weeks prior to that.
On the Atlantic Coast, stocks of low- and ultra-low sulfur diesel are 5.5 million barrels greater than the year-ago level, at 57.3 million barrels, while USGC combined stocks equal 33.3 million, nearly identical to the year prior.
Strong exports have helped draw stocks lower. Distillate exports have averaged 1.1 million b/d the last four reporting periods, versus 971,000 b/d during the four prior weeks.
Distillate exports from the Gulf Coast set to Europe and North Africa total about 620,000 metric tons (mt) so far for Dec., versus 1.06 million mt in Nov., according to a Monday analysis based on data from cFlow, Platts trade flow software.
