S&P Global Platts Preview of U.S. EIA Data: Likely to Show Crude Stocks Fell 2.5 Million Barrels

S&P Global Platts Oil Futures Editor Geoffrey Craig

NEW YORK - August 08, 2017

Falling U.S. crude oil stocks have pushed New York Mercantile Exchange (NYMEX) crude's term structure into a thin contango*, with the prospect of spreads flipping spreads into a prolonged backwardation will likely depend upon fundamentals tightening beyond the peak summer demand season, 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:

  • Crude stocks expected to fall 2.5 million barrels
  • Refinery utilization expected to decrease 0.5 percentage points
  • Distillates stocks expected to decline 600,000 barrels
  • Gasoline stocks expected to drop 1.25 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 difference between NYMEX crude's front-month and second-month contracts was around minus 17 cents per barrel (/b) Monday afternoon. That spread had been as little as minus 9 cents/b at the end of July.

With U.S. crude inventories down seven of the last eight weeks to the lowest levels of 2017, the term structure has adjusted removing any financial incentive for traders to keep barrels in storage.

For the front-month/second-month spread to move into backwardation for the first time since October 2014 could hinge on U.S. crude stocks making further reductions in the surplus to the five-year average.

Analysts surveyed Monday by S&P Global Platts expect U.S. crude stocks fell 2.5 million barrels last week. Stocks fell by an average of 800,000 barrels during the same period from 2012-16.

The surplus to the five-year average has been around 24% the last two reporting periods, which was the lowest level year-to-date.

Crude oil inventories typically decline for another few weeks before refiners ease operations with summer in the rear-view mirror, and planned repairs during autumn maintenance take additional units offline.

For now, however, refinery demand remains the biggest driver pulling stocks lower. Since the week ended June 2, crude runs averaged 17.191 million b/d. By comparison, the 17 million b/d mark was never broached in 2016.

Analysts expect refinery utilization fell 0.5 percentage points to 94.9% of capacity. That would still exceed the year-ago level of 92.2%.


Outside the U.S., the global oil market has also exhibited signs of tightness, particularly in the Atlantic Basin, where healthy margins and cracks have also been supportive for crude demand.

Nigeria's Qua Iboe was assessed last week at its biggest premium to forward Dated Brent since mid-December, reflecting strength across the Mediterranean and West African markets.

In the North Sea, differentials for Brent Blend and Forties rose last week to highs last seen in January 2016, while the blend Brent, Forties, Oseberg and Ekofisk (BFOE) market structure moved into a steeper backwardation**.

Atlantic Basin strength has spilled over into ICE Brent's term structure, with the spread between the front-month and second-month contracts flirting with backwardation last week.

ICE Brent's front-month/second-month spread has largely been in contango since June 2014, barring some forays into backwardation toward the end of a month as the prompt contract nears expiration.


Despite high levels of refinery activity, product crack spreads have held firm, serving as an incentive for refiners to maintain high utilization rates.

One supportive factor was the unexpected closure of Europe's largest refinery in Rotterdam, which looks to be shut until at least the second half of August because of a fire.

News of problems at Shell's 404,000 b/d Pernis refinery flipped the structure for Northwest Europe's benchmark low sulfur gasoil futures contract into backwardation early last week.

This comes after an incident July 10 knocked out Hellenic's 100,000 b/d Elefsis refinery in Greece, which combined with peak tourism demand from neighboring Turkey, exacerbated tightness in the Mediterranean diesel market.

Gulf Coast refiners have responded by sending cargoes to Turkey, a rare occurrence as refiners in Morocco and France usually fill supply gaps in the eastern Mediterranean.

Two Medium Range tankers were spotted loading at Motiva's 235,000 b/d Norco refinery in Louisiana and are both en route to Turkish ports, according to the S&P Global Platts trade flow software cFlow.

Exports help drain stocks in the Gulf Coast, where inventories of low- and ultra-low diesel equaled 43.075 million barrels the week ended July 28, a surplus of 16.4% to the five-year average.

Total distillate stocks stand nearly 11% above the five-year average, the smallest that surplus has been so far in 2017.

Analysts expect stocks fell 600,000 barrels last week, which if confirmed would make a small dent in the five-year surplus. Inventories fell by around 300,000 barrels on average from 2012-16 during the same time period.


Another major refinery outage in Mexico had been a boon for Gulf Coast refiners who helped fill the void after Pemex shut a fluid catalytic cracker (FCC) at its Salina Cruz refinery following a June 14 fire.

However, Pemex was heard to have begun bringing key units back online last week. Mexico accounts for roughly half of U.S. gasoline exports.

The four-week rolling average for U.S. gasoline exports reached 645,000 b/d the week ended July 7, the most since mid-May, according to Energy Information Administration data.

Given the high levels of refinery utilization, a major question continues to be whether gasoline demand will continue to be strong enough to absorb supply and prevent stocks from building.

Gasoline implied*** demand averaged 9.842 million b/d the week ended July 28, a record-high, according to EIA data going back to 1991.

After drawing seven of the last nine reporting periods, analysts are looking for another decline last week of 1.25 million barrels. The five-year average shows a draw of roughly 1.4 million barrels for the same period.

For more information on crude oil, visit the S&P Global Platts website.

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

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

Implied*** demand is the amount of product that moves through the U.S. distribution system, not actual end consumption.

Global, Americas, Asia: Kathleen Tanzy, + 1 917 331 4607,

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