S&P Global Platts Preview of U.S. EIA Data: Likely to Show Distillates Stocks 800,000 Barrels Higher
By S&P Global Platts Oil Futures Editor Geoffrey Craig
New York - December 27, 2016
Recent U.S. distillates inventories have been falling at a faster pace on a year-over-year basis due in large part to relatively cold weather driving up heating oil demand, according to an S&P Global Platts preview of this week’s pending U.S. Energy Information Administration (EIA) oil stocks data.
Survey of Analysts Results:
- Distillate stocks expected to rise 800,000 barrels
- Gasoline stocks expected to increase 500,000 barrels
- Refinery utilization expected to advance 0.5 percentage points
- Crude oil stocks expected to draw 1.5 million barrels
S&P Global Platts Analysis:
(The below may be quoted in part or full, with attribution to S&P Global Platts Oil Futures Editor Geoffrey Craig)
The U.S. Energy Information Administration (EIA) data showed U.S. distillates stocks for the week ended December 16 at 153.52 million barrels, which was 1.45% greater than the year-ago level. That was down from almost 7% in late November. Analysts surveyed Tuesday by S&P Global Platts expect U.S. distillates stocks to show an increase of 800,000 barrels for the latest reporting week ended last Friday. However, the size of the expected build is well below what is typical for this time of year. Last year at this time stocks rose by 1 million barrels, and the five-year average of EIA data shows stocks typically rose by 2.5 million barrels.
If the expected build of 800,000 barrels materializes, it would mean distillates stocks will exceed the year-ago level by less than 1%. To put that figure in perspective, weekly distillates stocks to date in 2016 have been greater than year-ago levels by an average of 13.8%.
That surplus was largest in the first quarter when a mild winter kept distillate stocks steady at over 160 million barrels, which is unusual for that time of year because peak heating fuel demand tends to draw stocks lower.
With distillates stocks on the brink of a year-on-year deficit, traders have piled into bullish bets in the futures market. Long positions held by money managers in NYMEX ultra-low sulfur diesel (ULSD) futures equaled 44,649 contracts in the week ended December 20, according to the latest U.S. Commodity Futures Trading Commission data.
That was the largest long position held by money managers in NYMEX ULSD futures since July 1, 2014, right before oil prices started plummeting. NYMEX January ULSD traded Tuesday as high as $1.7109/gal, a front-month high going back to July 2015.
Colder temperatures across the U.S. have meant greater demand for heating fuel. Over the last four reporting periods, implied* demand has averaged 4.031 million b/d, topping the year-ago level by 423,500 b/d.
At the same time, refinery activity has been subdued compared with last year, which has meant less supply.
Analysts expect refinery utilization will show a rise of 0.5 percentage points for the latest reporting week, to total 92% of capacity. If confirmed, that would still trail the year-ago rate, which stood at 92.6%.
The market is signaling for refiners to produce more. The NYMEX ULSD crack spread compared to West Texas Intermediate crude touched $18.69 per barrel (/b) Tuesday, a level last seen in November 2015, with the exception of the spike after the deadly explosion on Colonial Pipeline.
The NYMEX reformulated blend stock for oxygenate blending (RBOB) crack spread, while still well below its summer highs, has also been strengthening. The RBOB crack spread was greater than $16/b Tuesday, compared with around $12/b in mid-December.
Gasoline stocks showed an unexpected drawdown the week ended December 16 and analysts this week are calling for the data to show a build of 500,000 barrels for the latest reporting week.
For the same time of year, the five-year (2011-15) average shows an increase in gasoline stocks of 1.6 million barrels.
Refinery problems may have limited the size of last week's draw. BP shut a unit at its 413,500 b/d facility in Whiting, Indiana. Cold weather led Valero to cut production at its 147,500 b/d refinery in Sunray, Texas.
CRUDE DRAW EXPECTED
While greater refinery utilization puts upward pressure on product stocks, the opposite is true for crude stocks, as increased demand helps lower stocks toward the end of the year.
Analysts are looking for crude stocks to decline 1.5 million barrels for the week ended Friday, compared to a five-year average of a 540,000-barrel decline.
After four straight draws, U.S. crude oil inventories increased 2.256 million barrels in the week ended December 16 to 485.449 million barrels, a year-on-year surplus of nearly 33 million barrels.
Given current levels, U.S. crude inventories will almost certainly end 2016 higher than where they began the year. The last calendar year to record a deficit was 2013.
But expectations are high that the global oil balance will tighten next year given the agreement between OPEC and non-OPEC producers to slash production by nearly 1.8 million b/d. That reduction could mean fewer imports, but the net impact on U.S. crude oil stocks will also be determined by U.S. domestic output.
U.S. crude oil production averaged 8.786 million b/d in the week ended December 16, according to EIA estimates. That was up from a low of 8.428 million b/d in the week ended July 1.
For more information on crude oil, visit the S&P Global Platts website.
* Implied demand is the amount of product that moves through the US distribution system, not actual end consumption.
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