The oil futures market could overlook another increase in U.S. crude oil stocks this week if the U.S. Energy Information Administration (EIA) data Wednesday shows the build being driven by surging imports due to strong refinery demand, according to a Platts preview analysis ahead of this week's data.
Crude oil futures prices rose March 2, when the EIA last released its weekly stock data, even though it reported a massive 10.3 million-barrel increase in crude stocks, and prices have actually increased further. Prompt ICE Brent broke above $40 per barrel (/b) Monday morning in U.S. trading for the first time since December 10.
Analysts surveyed Monday by Platts expect this Wednesday's EIA data to show a 3 million-barrel build in U.S. crude oil inventories last week.
Last week's EIA data showed a pick-up in refinery activity, a sign that the winter maintenance season could be drawing to a close. The data showed the U.S. refinery utilization rate was 88.3% of capacity for the week ended February 26, up from a winter low of 86.1% in early February.
Even as U.S. crude oil inventories continue to push record levels, the fact that refinery runs increased may have explained why traders were willing to downplay the overall stock build, which was driven by imports rising 490,000 barrels per day (b/d) to 8.292 b/d.
That rally in imports could be an aberration. Forecasting weekly imports is difficult, as the EIA's weekly figure can fluctuate based on the accounting of even a single tanker.
One factor encouraging imports is refinery demand. That said, analysts are looking for refinery utilization to have decreased 0.5 percentage point to 87.8% of capacity.
But Platts data shows refining margins for many waterborne crudes popular in the U.S. Gulf Coast (USGC) been positive, providing an incentive for higher imports.
Imports from Mexico, for example, increased the last two reporting periods by a total of 211,000 b/d to 559,000 b/d. Coking margins on the Gulf Coast processing Mexican Maya crude averaged $11.04/b last week and $9.47/b over the last 30 days.
Imports from Saudi Arabia have averaged 1.2 million b/d the previous two reporting periods, up from an average 735,000 b/d for the two weeks ending February 12. Coking margins on the Gulf Coast processing Saudi Arab Medium crude oil averaged $7.01/b last week.
Platts margin data reflects the difference between a crude's netback and its spot price. Netbacks are based on crude yields, which are calculated by applying Platts product price assessments to yield formulas designed by Turner, Mason & Co.
Another factor drawing imports has been the structure of crude time spreads, which continue to incentivize putting barrels in storage in the U.S. instead of abroad.
Apart from meeting U.S. refinery demand, imports could be entering the U.S. to take advantage of a relatively steep contango. The contango is seen as a symptom of a global surplus that morphed into a cause for stocks to rise.
The spread between the front month and second month for NYMEX crude futures averaged minus $1.76/b last week. That spread has narrowed since February 11 when it was minus $2.62/b, but was still much wider than its counterpart. The prompt spread for ICE Brent averaged minus 63 cents/b last week.
GASOLINE, DISTILLATE STOCKS SEEN DRAWING
Analysts will be watching to see if implied gasoline demand rebounds after having decreased 455,000 b/d the week ending February 26 to 9.121 million b/d. But even that level could be considered bullish, as it was up 491,000 b/d from year-ago levels.
Weak prices have been good for gasoline demand. However, higher prices due to the switch to summer specification could have an impact. New York Mercantile Exchange (NYMEX) April reformulated blend stock for oxygenate blending (RBOB) contract settled Monday at $1.3927/gal, which was 34.3 cents higher than the March contract a week ago.
That said, analysts likely expect demand to remain steady, as gasoline stocks are expected to have decreased 1.5 million barrels last week, according to the Platts survey.
The opposite demand picture has surrounded demand for distillate. Implied distillate demand has trailed the year-ago level nearly every week since December, as a relatively mild winter saps heating fuel needs.
A contango in NYMEX ultra-low sulfur diesel (ULSD) futures contracts has also prompted more storage, keeping upward pressure on stocks. The spread between the front month and second month averaged minus 1.7 cents/gal last week.
Analysts are looking for a modest draw of 500,000 barrels last week.
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