Analysis of Weekly EIA Data
As refineries return from maintenance to full operations, there is no shortage of crude oil or refined products in the U.S. Imports are relatively low. Crude oil inventories in Cushing are very high. All-in-all, it appears that prices for crude oil and products should decrease over the next 2 months. However, international events, not covered in this report, could always overshadow these U.S. fundamentals.
Overall, refinery utilization in the US rose from 84.3 to 86 percent, a rate expected as we go into the spring refinery season. However, rates on the West Coast (PADD 5) decreased as refiners work off high inventories of distillate in place of crude oil, possibly a result of recent refinery maintenance. As this activity continues, imports into the West Coast may be lower than otherwise anticipated. In fact, PADD 5 imports dropped from 1.035 million barrels per day (MMBPD) to 767 thousand barrels per day (MBPD), a decrease of 1.876 million for the week ending February 24, 2017.
Crude Oil Inventories
U.S. crude oil inventories are at the highest on record at 520.2 million barrels. Slight increases were recorded in PADDs 1, 3 and 4. And, although there was a decrease of 0.5 million barrels in PADD 2, Cushing oil inventories rose to 63.5 million barrels, which appears to be the limit of available working capacity leased to others, not privately owned. EIA reports that as of September 2016, the net available shell capacity in Cushing, leased to others, is 76.82 million barrels. Shell capacity is always higher than the actual amount of crude oil that can actually be managed in the tanks.
Cushing oil includes domestic and foreign crude oil stocks held in tank farms in Lincoln, Payne, and Creek counties in Oklahoma. Cushing, Oklahoma, is the designated delivery point for NYMEX crude oil futures contracts. Obviously, lack of capacity at Cushing must create an interesting problem – theoretically it would create pressure to sell crude oil to clear capacity. On February 28,CFTC WTI Net Long Positions decreased by 22,636 contracts, settling at a total of 563,593 contracts, still well above recent levels. However, given that most refinery tanks are full to the brim with crude oil and Cushing tanks are full, it seems more likely that WTI prices will decrease in the near term.
At 255.9 million barrels, U.S. motor gasoline stocks are at historical high levels in all regions except PADD 5, where refineries levels are just now reaching regional high level. Clearly, there has been no difficulty among refineries in producing spring gasoline blends and there is plenty of product available as the travel season begins.
Inventories of distillate (heating oil and diesel fuel) were drawn down in PADD 5, where inventories were too high.
Presumably, heating oil is being further refined into gasoline components to meet the PADD 5 spring requirement for gasoline. Distillate inventories in all other PADDs did not change much and remain high except in PADD 4 (Rocky Mountain) where they are at average levels. All regions will probably be upgrading distillate to gasoline components in the next couple of months, further depressing U.S. demand for crude oil.