Crude oil inventories, refinery utilizations, production outages – PLATTS analysis

US weekly imports of Canadian crude oil averaged 2.876 million b/d in May, compared with 3.1 million b/d average

The seasonal summer drawdown in US crude oil stocks is underway and an uptick in refinery utilization is expected to push inventories lower last week for the second straight reporting period, according to a preview of the Energy Information Administration data by S&P Global Platts.

Chinese mega-refineryAnalysts surveyed by Platts expect EIA data to show a 3.1 million-barrel decline for the week ended May 27.

Front-month New York Mercantile Exchange (NYMEX) crude oil futures broke above $50 per barrel last week, buoyed by EIA data that showed US crude oil inventories were drawn down 4.226 million barrels the week ended May 20.

Another weekly drawdown would mark the first consecutive decline since Sept., providing further price support.

Analysts expect refinery utilization to show a 1.1 percentage points increase to 90.8 per cent of operable capacity, contributing to the crude stock draw.

If confirmed, the refinery run rate will lag the year-ago rate, which stood at 93.2 per cent of capacity. But it would still be at its highest level since the week ending April 1.

Refinery utilization has been on either side of 90 per cent since late March, unable to consistently stay above the 90 per cent threshold that typically signifies the start of summer demand.

While the beginning of summer historically points toward refinery utilization heading higher, historically and currently import trends look harder to pin down.

Imports linked to Brent-based prices have become more attractive as the Intercontinental Exchange (ICE) Brent/West Texas Intermediate (WTI) spread has shrunk to around parity. At the end of April, Brent commanded a premium of more than $2/b over WTI.

A tight Brent/WTI spread could lure more barrels to the US for refining purposes, but conversely, the incentive to export crude to the US for storage has dissipated.

The fallout from the Canadian wildfires and increased Iranian exports to Europe could also help influence US crude import figures.

The Alberta wildfires this month have removed more than 1 million b/d of oil sands production. But the impact on imports has been less severe so far.

US weekly imports of Canadian crude have averaged 2.876 million b/d in May, compared with a year-to-date average of 3.1 million b/d.

An expected jump in Iranian crude to Europe in June could displace medium sour crude oil, which competes for market share in the United States.

At least eight oil tankers carrying 10 million barrels have been fixed to travel from Iran to the European Union in the past two weeks, according to an S&P Global Platts analysis.

That is equal to roughly 600,000-650,000 b/d, compared with an average of almost 600,000 b/d of Iranian crude supplied to the European Union in 2011, a year before Brussels placed a ban on Iranian crude oil.

Russian, Saudi, Iranian and Iraqi exports of mostly medium to heavy sour crude compete in Europe and Asia. A portion of these exports could be diverted to the U.S. if refiners find the margins for running a particular grade attractive.

The coking margin for Gulf Coast refiners using Saudi Arab Medium averaged $11.46/b last week, up slightly from a 30-day moving average of $10.58/b.

PRODUCT STOCKS LIKELY TO DRAW

Despite an expected increase in refinery utilization, analysts were looking for drawdowns in gasoline and distillate stocks.

Gasoline stocks were seen drawing 1.4 million barrels last week.

Several fluid catalytic crackers (FCCs) were closed last week for repairs, which could help curb gasoline production and pressure stocks lower.

Delta Air Lines closed the FCC at its refinery in Trainer, Pennsylvania; ExxonMobil shut a unit related to an FCC at its Torrance, California, refinery; and LyndonBassel started planned maintenance on the FCC at its Houston refinery.

Another potential factor helping refined product stocks draw last week was the ongoing strike by workers at French refineries and ports, which could have dented US gasoline imports.

Four of France’s eight refineries remained totally shut Monday, as the strike enters its second week. France has increased product imports to refill stocks and offset the lack of supplies, according to oil industry group UFIP.

An open arbitrage has been pulling gasoline from Europe to the Atlantic Coast. Delivered European reformulated blend stock for oxygenate blending (Eurobob) cargoes last week averaged a discount of $43.80/metric ton.

However, that discount was smaller than the 30-day moving average of $52.01/mt and far below March, when the discount reached over $100/mt for much of the month.

For distillates, the French refinery strike could have opened export opportunities for U.S. refiners to ship diesel to Europe.

Platts data shows the arbitrage to export US Gulf Coast ultra-low sulfur diesel as being slightly open or closed depending on the destination in Europe.

The 10-day moving average of delivered USGC ULSD averaged an 83 cents/mt discount to cost, insurance and freight Northwest European and a 58 cent/mt premium to CIF Mediterranean cargoes Friday.

US refiners already face strong incentives to produce diesel, as the ULSD crack has increased sharply in recent weeks.

The front-month ICE ULSD crack against Brent has been around $14/b since May 18, up from around $11/b in early May and $8/b a month earlier.

A steady decline in US distillate stocks has pushed the ULSD crack spread higher, and analysts expect distillate inventories fell 400,000 barrels last week.

Distillate inventories have decreased six straight weeks; but at 150.9 million barrels, inventories are still 20.5 per cent greater than the five-year average for the same time of year.

 

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