Platts analysis of U.S. EIA oil stocks data

New York, NY - March 25, 2009

U.S. commercial crude oil stocks increased 3.302 million barrels to 356.583 million barrels the week ending March 20, the highest level in nearly 16 years, as imports edged up and inputs continued to inch down, an analysis of the weekly oil data from the U.S. Energy Information Administration (EIA) showed Wednesday.

At 356.583 million barrels, U.S. crude stocks were 38.595 million barrels above the five-year average and 44.736 million barrels above year-ago levels.

In addition to the 3.302 million barrel build in commercial crude inventories, another 1.847 million barrels of oil went into the U.S. government's Strategic Petroleum Reserve (a safety-net stockpile).

Crude inventories on the disconnected West Coast declined 1.6 million barrels. But crude stocks east of the Rocky Mountains climbed 4.4 million barrels, with the largest build seen on the Gulf Coast, which increased 3.6 million barrels. Inventories at Cushing, Oklahoma -- home of the New York Mercantile Exchange's crude contract delivery point -- fell 2.2 million barrels to 31.709 million barrels, the lowest level since end 2008. This decline was reason enough for the price spread between the May and June futures contracts to strengthen by 28 cents to minus $1.65 per barrel on Tuesday. The spread had narrowed further Wednesday, heading toward the close at minus $1.42 per barrel.

Crude imports jumped 204,000 barrels per day (b/d) to 9.384 million b/d with increases occurring in the Gulf and West Coasts and the Midwest. But with inputs down at just 14.135 million b/d, the increase in imports resulted in a larger-than-expected stock build. Analysts polled by Platts had projected an increase of 1.4 million barrels.

Despite crude inputs edging down 45,000 b/d to 14.135 million b/d, refiners throttled back on output of both gasoline and middle distillates, given the fact that deteriorating profit margins made production less economic. Output of jet fuel, residual fuel oil, propane and propylene were up week-over-week. Gasoline production fell 145,000 b/d to 8.723 million b/d while output of middle distillates dropped 318,000 b/d to 3.713 million b/d, the lowest level since September 26, 2008 when refinery operations along the Gulf Coast were still suffering the ravages of Hurricanes Ike and Gustav.

However, a low level of demand for middle distillates has made production economically unattractive. Demand for middle distillates climbed 207,000 b/d to 3.928 million b/d week-over-week, but on the basis of a four-week moving average, demand was still down 9% year-over-year.

The combination of falling output and higher demand resulted in a 1.6-million barrel draw in distillate stocks; the entire decline was concentrated in diesel stocks. One third of the drop in diesel stocks occurred in the Midwest, suggesting the start of planting season, which is common at this time of year. Despite the middle distillate stocks draw down, the inventory overhang remains daunting. At 143.932 million barrels, U.S. middle distillate stocks were 30.451 million barrels above the five-year average and 32.583 million barrels above year-ago levels.