EIA analysis: distillate stocks continue counter-seasonal climb
New York, NY - January 14, 2009
US middle distillate inventories climbed a further, counter-seasonal 6.7 million barrels last week as refiners, looking to cash in on an aggressively-priced heating oil crack spread, pushed yields to a near-record 31.07%, said Platts Senior Oil Analyst Linda Rafield in her analysis of Wednesday's US Energy Information Administration (EIA) oil stocks data.
With the New York Mercantile Exchange (NYMEX) heating oil crack spread still running at a $15-per-barrel premium to the RBOB crack, refiners had reason to push distillate production to 4.666 million barrels per day (b/d), which was a week-over-week increase of 116,000 b/d, while throttling back on gasoline output.
At 144.167 million barrels, middle distillate stocks were 22.255 million barrels above the five-year average and 21.64 million barrels above year-ago levels. Diesel stocks climbed 6.1 million barrels to 103.6 million barrels while heating oil inventories edged up 300,000 barrels to 40.624 million barrels. At 40.624 million barrels, heating oil inventories were 4.122 million barrels below the five-year average, but 5.441 million barrels above year-ago levels.
While refiners were cranking out middle distillates, implied demand tumbled 664,000 b/d to 3.654 million b/d week-over-week. On a four-week moving average, implied distillate demand at 4.096 million b/d was 2.4% below year-ago levels. This was a significant deterioration from the previous EIA report, which showed implied distillate demand on a four-week moving average up 0.3% from the previous year's. January is a time period when high demand for winter fuels typically results in a pull on inventories. But this year, a somewhat mild winter and high levels of production (resulting in large part from attractive margins) has caused stocks to climb at a rapid-fire pace.
While refiners ramped up distillate production, they cut gasoline output 302,000 b/d to 8.813 million b/d. The decline in gasoline output occurred despite a markedly improved NYMEX RBOB crack spread. This suggests that margins for different slates of crude, particularly sour grades, may not have been attractive enough to significantly spur production. It's worth noting the NYMEX RBOB crack spread did rally $5.50 per barrel the week ended January 9. Even with the drop in production, languid gasoline demand allowed stocks to increase 2.1 million barrels to 213.305 million barrels. Implied gasoline demand fell 232,000 b/d to 8.758 million b/d, with winter storms across the Great Plains and the Northwest cutting into consumption.
Demand for crude oil edged up a nominal 64,000 b/d to 14.586 million b/d with most of the increase occurring along the Gulf Coast. Regardless, commercial crude stocks increased 1.2 million barrels to 326.563 million barrels. At 326.563 million barrels, US crude stocks were 29.078 million barrels above the five-year average and 39.463 million barrels above year-ago levels. More importantly, stocks at Cushing, Oklahoma -- home of the NYMEX delivery point -- climbed 798,000 barrels to a record 32.98 million barrels. At that level, Cushing crude stocks were 16.459 million barrels above year-ago levels and rapidly approaching what is believed to be maximum operating capacity.
Rafield estimates the maximum storage capacity at Cushing is about 42.4 million barrels. However, some sources tell Platts only 80% of that is considered operable.
Since the end of the third quarter 2008, inventories at the delivery point have climbed a cumulative 18.485 million barrels as a steep contango (nearby prices are lower than those of later months) at the front of the crude futures curve on NYMEX has provided the economic incentive to store barrels. The February/March spread on NYMEX settled Tuesday at minus $6.99 per barrel. Following the release of the EIA data, the front spread was trading at minus $6.85 per barrel.