API analysis: US crude oil stocks rise amid low refiner demand

New York, NY - February 3, 2009

US crude oil inventories continued to pile up, building another 8.13 million barrels to 346.247 million barrels, the week ending January 30, according to an analysis of the American Petroleum Institute's (API) weekly oil inventory report issued Tuesday. Industry analysts surveyed by Platts had projected 2.9 million barrel build. At 346.247 million barrels, US crude stocks were 44.029 million barrels above year-ago levels.

Stocks at the New York Mercantile Exchange (NYMEX) delivery point in Cushing, Oklahoma jumped another 1.591 million barrels to 32.909 million barrels, but were still below levels reported the US Energy Information Administration (EIA) for the week ending January 23. EIA had Cushing inventories at a record 33.503 million barrels the week ending January 23, which was still 594,000 barrels above API's figure for the week ending January 30. The still steep contango in the front of the NYMEX crude curve has provided the incentive to bring barrels into the Midwest. *Contango is the industry vernacular for the condition whereby prices for nearby delivery are lower than prices for future-month delivery.

Stocks in PADD II (Midwest), home of the NYMEX delivery point, climbed 2.084 million barrels to 84.073 million barrels as Canadian imports into that region rebounded. Total Canadian crude imports increased 154,000 barrels per day (b/d) to 1.96 million b/d, but were still 327,000 b/d below year-ago levels.

But with refineries showing a decided lack of appetite for running barrels through facilities due to low end-product demand, inventories have amassed rapidly. Crude inputs actually edged up 261,000 b/d to 14.765 million b/d, but were still 308,000 b/d below year-ago levels.

The large build in crude stocks occurred despite a steep drop-off in imports. Total crude imports fell 1.347 million b/d to 8.815 million b/d with the most noticeable declines occurring in PADDs I (Atlantic Coast) and V (West Coast).

Despite the jump in inputs, gasoline production edged down 127,000 b/d to 8.769 million b/d. At the same time, gasoline imports declined 208,000 b/d to 1.096 million b/d, including blending components. Still, stocks increased, climbing 2.15 million barrels to 217.634 million barrels, which were 7.523 million barrels below year-ago levels.

While gasoline production edged down, output of middle distillate inched up, which given the extreme price premium of the NYMEX heating oil crack spread* compared to the RBOB crack spread, made economic sense. For the week ending January 30, the NYMEX heat crack was running about $8 to $9 per barrel higher than RBOB crack.

Distillate production inched up 52,000 b/d to 4.28 million b/d while imports fell 150,000 b/d to 260,000 b/d. The loss of imports more than offset the increase in output, causing stocks of middle distillates to decline a minor 184,000 barrels to 140.869 million barrels. At 140.869 million barrels, middle distillate stocks were 11.551 million barrels above year-ago levels.

Total US oil demand continued to flounder amid a slowing economy. On a four-week moving average, total US oil demand at 19.758 million barrels was 356,000 b/d below year-ago levels, or down 1.9%, which does not point to a particularly bullish price outlook.

The API shifted the timing of its report forward to Tuesdays at 4:30 pm EST, rather than continuing to release it along with the US Energy Information Administration's weekly oil statistics at 10:30 am EST on Wednesdays.

*In a typical comparison of commodity prices for current deliver versus future delivery, it's natural to assume that with each passing month the price would be higher to reflect the costs of storing the commodity as well as the cost of money for loss opportunity costs and other factors. In oil, such a price pattern is called contango. The opposite pattern in oil, where nearby prices are higher than those for future-month delivery is known as backwardation.

*Spread is this case is the difference between the price of crude oil and the price of the product made from the crude. Spread may also describe the price difference between prices for nearby delivery versus prices for later-month delivery.