Analysis of U.S. EIA data: U.S. product stocks decline on low refiner output

New York - October 21, 2009

Total U.S. product stocks declined 5.7 million barrels to 760.00 million barrels the week ending October 16, not because there has been a pick up in demand, but rather due to low refiner output, an analysis of the oil data released Wednesday by the Energy Information Administration (EIA) showed.

Over the past two weeks, total U.S. product stocks have fallen 11.80 million barrels as refiners suffering from deteriorating margins throttled back on production.

Still, total U.S. product stocks were 64.473 million barrels above the five-year average and 85.212 million barrels above year-ago levels.

Production of gasoline, middle distillates, residual fuel oil and propane and propylene edged up while output of jet fuel tumbled. Gasoline output inched up 4,000 barrels per day (b/d) to 8.457 million b/d while production of middle distillates rose 17,000 b/d to 3.893 million b/d, a function of slightly higher refiner throughputs, not an increase in implied demand.

Implied demand* for every product with the exceptions of residual fuel oil and propane and propylene turned lower week-over-week. Total U.S. oil demand fell 267,000 b/d to 18.669 million b/d. On a four-week moving average, total U.S. oil demand at 18.812 million b/d was down 0.1%, marking a 2-percentage-point drop from the previous EIA report that ended a string of rather robust readings throughout September and the first two reporting weeks in October.

Demand for gasoline dropped 306,000 b/d to 8.950 million b/d, a reading more in line with seasonal tendencies, but the decline was not enough to offset low production, causing inventories to fall 2.214 million barrels to 206.945 million barrels. Yet, gasoline stocks were 7.975 million barrels above the five-year average and 10.448 million barrels above year-ago levels. Gasoline imports tumbled 41,000 b/d to 649,000 b/d week-over-week, exceptionally low levels for imports.

Demand for middle distillates edged down 70,000 b/d to 3.487 million b/d despite the onset of winter fuel season. But low output and a sharp drop in imports caused stocks of middle distillate to decline 784,000 barrels to 169.888 million barrels with entire drop concentrated in diesel. Imports of middle distillates fell 44,000 b/d to a very low 120,000 b/d.

While total refinery throughputs inched up 34,000 b/d to 14.329 million b/d, crude inputs edged down 27,000 b/d to 14.070 million b/d, which would increase output of light end products. A combination of lower crude inputs and a decline of 32,000 b/d to 8.699 million b/d in imports allowed stocks to climb 1.312 million barrels to 339.072 million barrels.

Refiners have little reason to bring in additional barrels given the narrow contango in the front of the New York Mercantile Exchange (NYMEX) curve and a renewed downturn in demand. The entire build in crude stocks was on the largely disconnected West Coast, where inventories climbed 1.9 million barrels to 53.189 million barrels. East of the Rockies, crude stocks fell 900,000 barrels with Gulf Coast inventories dropping 2.1 million barrels to 178.817 million barrels while the Atlantic Coast and Midwest saw stock builds of 600,000 barrels, each.

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