Commentary on US EIA oil stocks data
New York, NY - January 28, 2009
More winter weather across the US last week dented heating oil inventories, cutting stocks by 1.9 million barrels to 37.3 million barrels, according to data released Wednesday by the US Energy Information Administration (EIA).
Heating oil inventories have declined by 3.29 million barrels over the past two weeks as brutally cold temperatures swept across the Northwest, Great Plains and Northeast regions.
The losses were concentrated in the mid-Atlantic region as single-digit temperatures blanketed the East Coast. At 37.3 million barrels, US heating oil inventories were 5.221 million barrels below the five-year average, but 5.542 million barrels above year-ago levels.
The draw on heating oil inventories was the result of a long-awaited pick-up in demand and a marked decline in imports. Implied demand for middle distillates edged up 176,000 barrels per day (b/d) to 4.258 million b/d, a still rather unexceptional level for this time of year. On a four-week moving average, implied demand for middle distillates at 4.078 million b/d was 3% below year-ago levels, with weakness reflecting general economic malaise, not weather conditions. Lack of demand for diesel saw stocks continue to increase, with inventories climbing 900,000 barrels to 106.6 million barrels.
Distillate imports dropped 98,000 b/d to 264,000 b/d, having little impact on refinery output. Distillate production inched up 17,000 b/d to 4.170 million b/d despite continuation of an aggressively-priced heating oil crack spread.
Even though the New York Mercantile Exchange (NYMEX) RBOB crack spread recovered (going from negative to positive in price and which would typically cause refiners to increase production of gasoline), refiners favored production of distillate because of the continued $10 per barrel premium of the heating oil crack .
While distillate production was essentially unchanged, gasoline output was lower as demand levels did not warrant notable increase. Gasoline production edged down 69,000 b/d to 8.66 million b/d. Overall, crude runs continued to work lower as refiners started maintenance, with the decline concentrated in the Gulf and Atlantic coasts.
Lower refinery run rates caused inventories of US crude stocks to rise 6.218 million barrels to 338.881 million barrels. At 338.881 million barrels, total US crude stocks were 37.716 million barrels above the five-year average and 45.929 million barrels above year-ago levels. This is the highest level for US crude stocks since August 2007.
Stocks at the NYMEX futures contract delivery point in Cushing, Oklahoma, climbed 306,000 barrels to a record 33.503 million barrels, EIA said. At 33.503 million barrels, crude stocks at Cushing were 17.748 million barrels above year-ago levels. Since the end of the third quarter of 2008, Cushing stocks have increased 19.12 million barrels; the contango* in the front of the NYMEX crude futures curve has continued to provide the economic incentive for refiners to store barrels.
Crude imports declined 158,000 b/d to 9.708 million b/d, with refiners not having reason to increase run rates in the face of weak demand. Crude imports on the Gulf Coast fell 252,000 b/d to 5.741 million b/d. Imports decreased in every region except the Atlantic Coast.
For more information on crude oil, visit Platts website.
* In a typical comparison of commodity prices for current deliver versus future delivery, it's natural to assume that with each passing month the price would be higher to reflect the costs of storing the commodity as well as the cost of money for loss opportunity costs and other factors. In oil, such a price pattern is called contango. The opposite pattern in oil, where nearby prices are higher than those for future-month delivery is known as backwardation.