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S&P Global Platts Preview of U.S. EIA Data: Likely to Show Crude Stocks Fell 3.5 Million Barrels


NEW YORK - January 08, 2018


After rising last week to their highest levels since December 2014, crude oil futures could face selling pressure over the coming weeks from seasonal builds in U.S. crude oil stocks due to refinery maintenance, 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)


  • Crude oil inventories expected to fall 3.5 million barrels
  • Refinery utilization expected to decline 0.5 percentage points
  • Distillate stocks expected to show a build of 2.1 million barrels
  • Gasoline stocks expected to rise 2.3 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)


Those builds typically begin in early January, but the start date may be pushed back slightly this year as refinery activity stays brisk to keep up with demand amid the cold snap across the United States.


Analysts surveyed Monday by S&P Global Platts expect crude stocks fell 3.5 million barrels last week. For the same period, inventories increased by 1.3 million barrels from 2013-17.


Crude oil inventories have declined seven consecutive weeks by 34.5 million barrels to total 424.46 million barrels for the week ended December 29, according to Energy Information Administration (EIA) data.


Inventories ended 2017 9.3% above the five-year average, a stark contract to the 35.6% surplus seen at the end of 2016.


This reduction in the size of excess stocks emerged as a catalyst for higher oil prices. Prompt-month New York Mercantile Exchange (NYMEX) crude oil futures settled Thursday at $62.01 per barrel (/b), its highest level since December 2014.


The ability to hold above $60/b will likely be tested as refinery demand ebbs. Another variable to watch will be U.S. crude oil production.


U.S. crude output averaged a record-high 9.789 million b/d the week ending December 15, according to EIA estimates.


Output stayed below that mark the next two weeks, perhaps on account of weather-related problems which could have played a role last week as well.


With the cold front lifting this week, the focus will quickly shift back to whether U.S. production can head even higher -- as many forecasters expect -- particularly given this recent boost in oil prices.


Data from the U.S. Commodity Futures Trading Commission shows the size of the short position for swap dealers has climbed into record territory, an indication of increased producer hedging.


Swap dealers serve as counterparties to producers in over-the-counter transactions, and then sell futures to mitigate price risk.



WEATHER PUTS DIESEL IN FOCUS

Refinery activity likely dipped last week after having risen to its highest level of 2017, but remained elevated given an incentive to crank out distillates to meet heating fuel demand.


At 96.7% of capacity the week ending December 29, the utilization rate was higher than at any point in 2017, topping 96.6% mark from late August.


Analysts expect refinery utilization fell 0.5 percentage point last week to 96.2% of capacity. If confirmed, that would still be far higher than a year ago when utilization averaged 93.6%.


In late December, the NYMEX ultra-low sulfur diesel (ULSD) crack spread against West Texas Intermediate (WTI) climbed north of the $22-$25/b range in place since October, and kept rising until it topped $27/b for the first time since March 2015.


U.S. refiners have responded to the rising crack spread. Distillates production averaged 5.592 million b/d the week ending December 29, an all-time high for the second period in a row.


The need for additional supply has been driven by the extreme cold that gripped much of the country, including the Atlantic Coast, the epicenter of the U.S. heating fuel market.


On top of usual sources of demand, many industrial and commercial customers in the region were asked by their local utilities to switch from natural gas to heating fuel.


And in addition, oil-burning power plants in New England which rarely get used all year have been running hard, contributing one-third to ISO New England's power generation fuel mix at times.


In the physical market, New York Harbor ULSD barges were assessed Thursday at $2.0865 per gallon (/gal), the highest since December 2014.


Prices have adjusted to beckon more supply, and these signals appear to be working. Apart from greater domestic production, cargoes were even heard to be headed to the U.S. from abroad.


Tankers carrying distillates were moving from Northwest Europe and the Baltics toward the U.S. in a reversal of the usual trans-Atlantic flow.


So far, this extra supply seems to have been enough to satisfy demand. US distillate stocks jumped 8.899 million barrels the week ending December 29 to 138.8 million barrels.


Analysts expect distillate stocks rose a further 2.1 million barrels last week. That compares with an average build of 6 million barrels for the same period from 2013-17.



STORM MAY SLOW GASOLINE DEMAND

The main question for U.S. gasoline stocks will be whether last week's storm that brought ice and snow up and down the East Coast dampened demand, as expected with drivers trying to stay off the roads.


Analysts are looking for an increase in gasoline stocks of 2.3 million barrels, which would fall well below the 6.05 million-barrel build seen for the same period from 2013-17.


One factor that might have helped defray the size of the build was if refiners kept focusing on distillates at the expense of gasoline.


For the week ending December 29, U.S. gasoline production decreased 564,000 b/d to 9.682 million b/d, the smallest amount in nearly four months.


Imports into the U.S. Atlantic Coast (USAC) have also been soft recently. Over the last two weeks, USAC gasoline imports averaged 335,000 b/d, compared with 523,000 b/d for the same period from 2013-17.


This comes as stocks in the region have increased seven of the last eight weeks by nearly 5.8 million barrels to 58.21 million barrels.


Gasoline stocks normally increase toward the end of the year. So despite these builds, USAC gasoline inventories remain about 1% below the five-year average, the same as back in early November.


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


CONTACT
Global, Americas, Asia: Kathleen Tanzy, + 1 917 331 4607, kathleen.tanzy@spglobal.com.

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