S&P Global Platts Preview of U.S. EIA Data: Likely to Show Distillates Stocks Rose 1.3 Million Barrels

By S&P Global Platts Oil Futures Editor Geoffrey Craig

NEW YORK - January 02, 2018

A frigid blanket of air across the eastern half of the U.S. boosted demand for heating oil, minimizing an expected build in distillates inventories last week compared with the typical increase for this time of year, 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:
(The below may be attributed to the S&P Global Platts survey of analysts)

  • Distillates stocks expected to build 1.3 million barrels
  • Gasoline stocks expected to rise 2 million barrels
  • Crude stocks expected to drop 5.7 million barrels
  • Refinery utilization expected to decline 0.1 percentage points

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)

Analysts surveyed Tuesday by S&P Global Platts expect distillates stocks rose by 1.3 million barrels last week. For the same reporting period, the five-year average shows an increase of 7.4 million barrels.

Bitter temperatures have lifted the New York Mercantile Exchange (NYMEX) ultra-low sulfur diesel (ULSD) crack spread to $26-$27 per barrel (/b), up from a range of $22-$25/b since October, encouraging refiners to run hard.

Distillates production averaged an all-time high 5.47 million b/d the week that ended December 22, according to Energy Information Administration data.

With the cold snap yet to break, refiners probably kept production levels high last week to meet demand, particularly around the New York Harbor, where price signals have screamed for additional supply.

The NYMEX ULSD crack topped $27/b briefly Friday, its highest level since March 2015, and the prompt-month NYMEX ULSD futures contract settled the same day at $2.0755/gal -- a high going back to May 2015.

The value of line space on Colonial Pipeline's distillates-only Line 2 was assessed last week at 3.25 cents/gal, a high going back to March 2016. The Colonial Pipeline ships products from the Gulf Coast to the U.S. Northeast.

Limited pipeline space and the Jones Act constrain the volume of supply that can reach the Atlantic Coast from the U.S. Gulf Coast (USGC), even though USGC differentials last week were near their lowest levels of the year.

The strength in the New York Harbor market has traders even looking at the economics for shipping diesel from Europe to the U.S., a reversal of the typical diesel arbitrage.

The amount of diesel in storage still provides a nice cushion, however. Stocks of low- and ultra-low sulfur diesel on the Atlantic Coast sit 22% above the five-year average at 45.9 million barrels.

Nonetheless, traders have turned decidedly bullish. Money manager length in NYMEX ULSD reached an all-time high of 92,968 contracts the week ending December 26, according to Commodity Futures Trading Commission data.

That bullish fervor has also helped strengthen the NYMEX ULSD term structure, which no longer rewards traders to place barrels in storage.

The nearby spread was in a shallow contango*, but then flipped into backwardation last week. NYMEX ULSD's (onne month and two month) M1/M2 spread was around 2.6 cents per gallon (/gal) Tuesday, a level not seen since a massive spike in February 2015.


A major question has been whether this winter will see a repeat of 2016-17 when relatively mild temperatures sapped heating fuel demand leading to product builds.

Those builds weighed on the oil complex until crude futures buckled, falling in March by around $7/b to $47/b.

Despite the ongoing bout of freezing weather across a large swathe of the U.S., it's too early to make any conclusions about how this winter will compare with seasonal norms.

There is still the possibility that traders quickly liquidate bullish positions when the cold front lifts, creating price risk for oil futures particularly if the gasoline market also looks structurally weak.

U.S. gasoline stocks have increased seven weeks in a row by 18.8 million barrels to 228.374 million barrels the week ending December 22.

Compared with the five-year average, inventories went from a deficit of 0.2% to a surplus of 1.9% during this stretch.

Analysts are looking for gasoline stocks to have increased 2 million barrels last week. Inventories built by 6 million barrels on average for the same reporting period from 2012-16.

Strong export demand from West Africa has helped pull barrels from storage. Five cargoes left U.S. Gulf Coast ports in December, compared with a single cargo in November, according to S&P Global Platts trade flow software cFlow.

Gasoline shortages in Nigeria over the last few weeks have also attracted additional supply from Northwest Europe. Gasoline stocks in the Amsterdam-Rotterdam-Antwerp hub rose the week ending December 27 for the first time in six weeks to 854,000 metric tons (mt), which was 17% less than the same period in 2016.


The cold weather has also been a supportive factor for crude futures because of the boost in refinery demand.

Prompt-month NYMEX crude oil futures were stuck in a range of around $56-$59/b until it broke higher late last week and settled above $60/b for the first time since June 2015. February crude settled 5 cents lower Tuesday at $60.37/b.

The amount of crude processed by refineries averaged 17.398 million b/d the week ending December 22, which was 841,000 b/d more than the year prior. Refinery utilization equaled 95.7% of capacity, its highest level since late August. Analysts expect the run rate to show a 0.1 percentage point drop for the latest reporting week to 95.6%, versus 92% a year ago.

With refiners running hard, U.S. crude oil inventories have fallen six straight weeks by 27.1 million barrels to 431.88 million barrels, the lowest that inventories have been since October 2015.

Analysts expect stocks to show a further decline of 5.7 million barrels last week, which would actually fall short of the 6.7 million-barrel average decline for the same period from 2012-16.

Steep drawdowns are common at the end of the calendar year led by the Gulf Coast in an attempt by inventory holders to minimize ad valorem taxes that are assessed as of December 31.

Market participants can try to reduce imports, increase exports, raise refinery runs or ship crude into other regions in order to cut down on the size of their tax bill.

U.S. crude exports averaged 1.587 million b/d last week, according to S&P Global Platts Analytics. That estimate is based on cFlow. Exports averaged 1.21 million b/d the week prior, EIA data shows.

Based on U.S. Customs data, S&P Global Platts Analytics estimates U.S. crude imports averaged 7.672 million b/d last week. Imports averaged 7.993 million b/d the week ending December 22, according to EIA.

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.

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

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