US crude inventories slump, fuel inventories surge at year end

US crude inventories fell sharply in the last week of 2016, however, gasoline and distillate stocks increased. Reuters photo by Rick Wilking.

US crude inventories down 7.1 million barrels last week

By David Gaffen

Jan 5 (Reuters) – US crude inventories fell sharply as higher refining runs prompted a surge in gasoline and distillate stocks in the last week of 2016, the Energy Information Administration said on Thursday.

Crude inventories fell 7.1 million barrels in the week to Dec. 30, much more than analysts’ expectations for a decrease of 2.2 million barrels.

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Some of the drawdown, analysts said, is attributable to year-end tax considerations, as refiners use up crude that is on hand to avoid facing higher taxes for larger inventories.

“The large crude draw can entirely be explained away by the 7.1 million-barrel draw to Gulf coast inventories, as tax mitigation strategies meant crude cargoes remained offshore, rather than being brought onshore, where they would be taxed,” said Matt Smith, director of commodity research at ClipperData in Louisville, Kentucky.

U.S. crude imports fell last week by 1 million barrels per day.

Refinery crude runs rose 132,000 bpd as utilization rates gained 1 percentage point at 92 per cent of total capacity.

The increase in refinery output was concentrated in the U.S. Gulf Coast region, resulting in the largest weekly build in U.S. distillate inventories on record, according to the EIA.

Overall, distillate stockpiles, which include diesel and heating oil, soared 10.1 million barrels, versus expectations for a 1.1 million-barrel increase, the EIA data showed. That included a build of 5.8 million barrels in PADD 3, the Gulf Coast region.

“To have this kind of swing in one-week inventory … has to do with the calendar. Yes, there was warm weather and yes, production is up, but a lot of it has to do with the calendar year consideration, tax considerations,” said Donald Morton, who runs an energy trading desk at Herbert J. Sims & Co, an investment banking firm in Fairfield, Connecticut.

Gasoline stocks rose 8.3 million barrels, compared with analyst expectations in a Reuters poll for a 1.8 million-barrel gain.

Oil futures turned negative after the data release. U.S. crude was down 27 cents, or 0.6 per cent, at $52.95 a barrel, down from an earlier high of $54.12 while Brent was off by 31 cents at $56.15.

Crude stocks at the Cushing, Oklahoma, delivery hub for futures rose by 1.1 million barrels, the EIA said.

(Reporting By David Gaffen; additional reporting by Scott DiSavino and Ethan Lou; Editing by Marguerita Choy)