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S&P Global Platts Analysis of U.S. Energy Information Administration (EIA) Data


EIA Data: U.S. petroleum inventories swing sharply ahead of end-of-year taxes

By Jack Laursen, S&P Global Platts Oil Editor


New York - January 06, 2017


U.S. EIA Data Reported


  • Crude stocks fell 7.051 million barrels
  • Gasoline stocks rose 8.307 million barrels
  • Distillate stocks rose 10.051 million barrels
  • Refinery utilization rose 1 percentage point


U.S. refiners shed inventories and increased their crude runs in the week ended December 30 for tax purposes, resulting in a larger-than-expected draw in crude oil stocks and sharp builds in refined product inventories, an S&P Global Platts analysis of federal data showed Thursday.


December 31 is typically the assessment date for taxes on crude oil inventories across the United States, and market participants typically reduce their crude oil inventories by cutting imports, increasing runs or moving barrels to different locations to avoid the tax.


U.S. commercial crude oil stocks fell by 7.051 million barrels to 479.012 million barrels, as imports fell 984,000 b/d to 7.183 million b/d, weekly US Energy Information Administration data showed Thursday. Analysts surveyed by S&P Global Platts Tuesday expected a stock draw of 1.7 million barrels.


Moreover, exports rose by 59,000 barrels per day (b/d) to 686,000 b/d, while refiners increased their utilization rate by 1 percentage point to 92% of operable capacity, the highest rate in 15 reporting weeks. Refinery utilization has risen 7 percentage points since the week ended October 14, when fall maintenance programs were in full swing.


Increasing refinery utilization, combined with drops in consumption likely tied to the holiday season, led to sharp builds in refined product inventories.


"While more than the market had been looking for, we note that the swings follow the typical seasonal pattern, with strong refining runs helping to convert crude oil into products," Citi energy futures specialist Tim Evans said. "The size of the swings may be more than anticipated, but the direction was expected."


Gasoline inventories jumped 8.307 million barrels to 235.450 million barrels and distillate stocks rose 10.051 million barrels to 161.685 million barrels.


Analysts surveyed were looking for refinery utilization to increase by 0.7 percentage points, with gasoline and distillate stocks rising 1.5 million barrels and 900,000 barrels, respectively.


Gasoline product supplied -- which some analysts use as a proxy for demand -- dropped 813,000 b/d to 8.465 million b/d in the reporting week, while distillate product supplied fell 1.175 million b/d to 2.792 million b/d.


On a five-year average, gasoline product supplied falls 796,000 b/d for the same the reporting week -- which encapsulates the holiday season -- and distillate product supplied drops 721,000 b/d.


In addition, an increase in gasoline imports of 288,000 b/d to 722,000 b/d also played a role in the inventory build. As usual, the vast majority of gasoline imports landed on the East Coast.


PRODUCT FUTURES POST AFTERNOON RECOVERY


Refined products futures fell sharply after the EIA data was released at 11:00 am EST, with February NYMEX reformulated blend stock for oxygenate blending (RBOB) falling 2 cents immediately after the report the Wednesday settle.


NYMEX February ultra-low sulfur diesel (ULSD) tracked a similar path, dropping as low as $1.6702 per gallon (/gal), a drop of 2.3 cents.


However, both contracts clawed back much of the morning losses and settled largely steady on the day, with RBOB down 82 points $1.6377/gal and ULSD 12 points higher at $1.6942/gal.


Meanwhile, traders seem to brush off the large draw in crude inventories, with NYMEX February light sweet crude rising only modestly, settling 50 cents higher at $53.76/b. ICE March Brent settled 43 cents higher at $56.89/b.


A sharp drop in the value of the US dollar may have provided crude futures with some support, as the dollar index fell 1.25 to trade at 101.45 around the time of the settle.


Some market participants saw higher Saudi Arabian official selling price differentials as further evidence of compliance with the November 30 supply cut agreement by OPEC and non-OPEC producers.


The relatively muted response to the larger-than-expected crude stock draw is most likely explained by traders' expectations based on seasonal patterns, while market participants may be cautious to get caught in long positions.


The NYMEX front-to-second-month crude spread has widened into a deeper contango* in recent weeks, even as the flat price has rallied in the wake of the output agreement.


On Thursday, the spread settled at minus 92 cents/b, out from minus 53 cents/b on November 16, with signs of rising U.S. production and uncertainty related to the longevity of the production-cut deal keeping flat prices and time spreads in check at current levels.


"I could envision next week's [EIA] report showing crude imports back above 8 million b/d, so we could see a crude stock change of the same magnitude in the opposite direction," Kyle Cooper of IAF Advisors said. "Also, U.S. oil production certainly seems to have found a bottom, and I expect producers to continue adding rigs in the coming weeks."


* Contango* is the industry vernacular for the condition whereby prices for nearby delivery are lower than prices for future-month delivery.




CONTACT
Kathleen Tanzy, + 1 917 331 4607, kathleen.tanzy@spglobal.com


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