Analysis of U.S. EIA oil data: Cushing crude stocks build, bucking overall trend
New York, NY - July 8, 2009
Despite an almost 3-million-barrel decline in U.S. commercial crude stocks, inventories at the critical delivery and pricing point of Cushing, Oklahoma climbed 1.583 million barrels to a three-month high of 30.184 million barrels last week, an analysis of weekly oil data released Wednesday by the U.S. Energy Information Administration (EIA) showed.
A combination of higher imports into the Midwest and a drop in refinery inputs fed into the stock build at Cushing. Crude inputs in the Midwest fell 17,000 barrels per day (b/d) to 3.297 million b/d while imports rebounded 128,000 b/d to 1.238 million b/d.
The build in Cushing, overshadowing the headline crude draw, caused the August/September spread on New York Mercantile Exchange (NYMEX) to trade out to a low of minus 99 cents after settling the previous session at minus 93 cents. NYMEX crude increased its discount to Brent on the Intercontinental Exchange, trading out to minus 40 cents after settling Tuesday at minus 30 cents.
Total U.S. commercial crude stocks declined 2.896 million barrels to 347.297 million barrels last week, the EIA said. Still, crude stocks are 26.162 million barrels above the five-year average and 53.361 million barrels above year-ago levels.
The steady decline in U.S. crude stocks over the past two months is the result of low import levels rather than high refinery input levels. U.S. crude stocks have fallen 27.961 million barrels over the past two months despite refiners having little reason to ramp up throughputs given current weak demand.
As a result of weak demand, total U.S. product stocks climbed another 7.9 million barrels to 766.800 million barrels, an 11-year high. Total product stocks were 82.024 million barrels above the five-year average and 86.9 million barrels above year-ago levels.
Total implied product demand1 edged up 325,000 b/d to 18.494 million b/d, but the increases were concentrated in gasoline, which inched up 176,000 b/d to 9.229 million b/d week-over-week, and residual fuel oil, propane and propylene. The jump in demand for residual fuel oil, propane and propylene was tied to an increase in power generation needs due to soaring temperatures across the South, Midwest and West Coast as well as a pick-up in petrochemical demand.
The uptick in gasoline demand may be a one-off event given that product will typically move through the distribution system ahead of the July 4 holiday weekend. Historically, demand for gasoline will taper off following July 4 and swing back up at the beginning of August for the final leg of driving season.
Despite the uptick in gasoline demand, stocks rose 1.902 million barrels to 213.14 million barrels, with imports bouncing back above 1 million b/d and output inching up 13,000 b/d to 9.254 million b/d. The gasoline stock build firmly put inventories into a surplus against the averages -- stocks are 3.441 million barrels above the five-year average and 1.374 million barrels above year-ago levels. That is a thin cushion should demand move higher, but it does not seem likely given high levels of unemployment and the ongoing recession.
The more imposing stock situation remains middle distillates, where inventories swelled another 3.739 million barrels to 158.738 million barrels. Middle distillate stocks are 36.894 million barrels above the five-year average and 36.237 million barrels above year-ago levels. As a result of the economy, lower levels of rail and road traffic are keeping demand for diesel at bay.
The stock build in middle distillates was spread between diesel and heating oil. Diesel inventories were up 1.274 million barrels to 91.212 million barrels, while heating oil stocks rose 1.986 million barrels to 45.318 million barrels.
1. The amount of product that moves through the U.S. distribution system, not actual end consumption.