Canadian crude imports rebounded, rising 501,000 b/d to 3.088 million b/d despite ongoing fires in Alberta’s oil sands producing region
According to the Energy Information Administration data, U.S. distillate inventories declined last week for the sixth straight reporting period.
According to an S&P Global Platts analysis of the data, distillate inventories showed a drawdown of 1.284 million barrels to a level of 150.878 million barrels.
Analysts surveyed Monday by S&P Global Platts were looking for a decline of 900,000 barrels the week ending May 20.
The recent draws are surprising in that distillate stocks typically build in the spring because heating oil demand fades.
One reason for the counter-seasonal behavior could be that this year’s mild winter may have led refiners to shift production to gasoline earlier than usual, analysts said.
“It appears refineries may have overcompensated a bit on gasoline production in lieu of distillate production,” said Anthony Starkey, energy analysis manager at Platts Analytics, a forecasting and analytics unit of S&P Global Platts. “One cannot fault them, as gasoline margins have dictated as much to begin the year,” he said.
Year to date, weekly gasoline production has averaged 203,000 b/d above its year-ago level, while weekly distillates production has been 158,000 b/d less than its year-ago level.
Gasoline production has been running high, but questions remain whether demand has more room to increase from current levels.
Gasoline implied* demand has already topped the 2015 high, even before the start of this year’s summer driving season.
For the week ending May 13, demand reached 9.755 million b/d, versus a 2015 high of 9.749 million b/d seen in July.
Gasoline demand fell 239,000 b/d last week to 9.516 million b/d, pushing gasoline stocks 2.043 million barrels higher to 240.111 million barrels.
Analysts surveyed were looking for a 1.6 million barrel draw. The unexpected build dragged NYMEX RBOB futures lower. The prompt contract was down 2.18 cents at $1.6354 per gallon Wednesday afternoon.
Stocks on the U.S. Atlantic Coast (USAC) — home to the New York Harbor-delivered NYMEX RBOB contract — rose 2.232 million barrels last week to 68.276 million barrels, an 18% surplus to the five-year average for this time of year.
USAC gasoline imports increased 253,000 b/d to 864,000 b/d, pushing stocks higher in the region.
CRUDE STOCKS DECLINE
U.S. commercial crude oil inventories showed a drawdown of 4.226 million barrels last week, driven primarily by a reduction in U.S. imports, which fell 362,000 b/d to 7.315 million b/d.
Imports dropped sharply on the Gulf Coast, down 535,000 b/d to 3.142 million b/d, helping bring stocks in the region 3.58 million barrels lower to 278.831 million barrels.
While imports fell sharply last week, they have the potential to rebound in the coming days and weeks given the tight Brent/West Texas Intermediate (WTI) price spread, which encourages imports of Brent-linked crude oils into the United States.
The front-month ICE Brent/WTI spread has averaged 28 cents/b in May, with Brent at a premium, compared to $1.33/b in April.
U.S. Gulf Coast (USGC) refinery utilization also declined, down 1.6 percentage points to 91.7 per cent of capacity. With that, USGC crude runs fell 142,000 b/d to 8.663 million b/d. The still-formidable runs, while down, account for a large share of the outright stock decline.
With the outright decline in imports and runs netting a 2.75 million-barrel decline, it is possible that increased flows on the Capline pipeline — which runs from Louisiana to Patoka, Illinois — accounted for the further decline in stocks.
Weekly EIA data does not show changes in regional crude production and exports.
Total U.S. refinery utilization fell by 0.8 percentage points to 89.7 per cent.
Somewhat surprisingly, crude imports from Canada rebounded last week, rising 501,000 b/d to 3.088 million b/d despite ongoing fires in the heart of Alberta’s oil sands producing region, which have knocked out as much as 1.2 million b/d of output.
A drawdown of crude stockpiles at Alberta storage hubs at Hardisty and Edmonton likely explains the increase, while crude oil produced in the oil sands must first travel down regional pipelines — including Inter Pipelines Corridor and Pembina’s Alberta Oil Sands Pipeline.
Price differentials between Western Canadian Select (WCS) and Syncrude have responded to the supply impact, albeit slightly.
WCS at Hardisty, Alberta, Canada, was assessed by S&P Global Platts at WTI calendar month average (CMA) minus $12/b Tuesday, up from minus $14-$15/b in late-April.
Syncrude was assessed at a $3.25/b premium to WTI CMA Tuesday, up from a 25-cent/b discount on May 3.
*Implied demand is the amount of product that moves through the U.S. distribution system, not actual end consumption.