Analysis of U.S. EIA data: Crude oil stocks plunge as imports hit 11-month low

New York - August 19, 2009

U.S. crude stocks fell a whopping 8.397 million barrels to 343.632 million barrels the week ending August 14, with imports falling to an 11-month low, an analysis of the oil data released Wednesday by the U.S. Energy Information Administration showed.

U.S. crude imports dropped 1.417 million barrels per day (b/d) to 8.113 million b/d, the lowest level since the week ending September 19, 2008, when Hurricane Gustav prevented tankers from offloading at the Houston Ship Channel and the Louisiana Offshore Oil Platform.

In the Gulf Coast, or PADD III, crude imports dropped 1.285 million b/d to 4.447 million b/d, also an 11-month low and reflecting an arbitrage opportunity between the U.S. and other areas that has been closed for weeks.

High levels of U.S. crude inventories--particularly at Cushing, Oklahoma, the delivery point for the New York Mercantile Exchange (NYMEX) oil futures contracts--has pushed the U.S. benchmark grade to a steep price discount to Brent and Oman futures, key benchmarks outside the United States. However, stocks at Cushing edged down 342,000 barrels to 33.264 million barrels. Cushing stocks were still 10.464 million b/d above the five-year average and 14.796 million b/d above year-ago levels.

Meanwhile, crude inventories in the Midwest fell 1.138 million barrels to 85.779 million barrels and imports into this region dipped 17,000 b/d to 1.102 million b/d.

Total U.S. crude stocks were 26.094 million barrels above the five-year average and 37.695 million barrels above year-ago levels.

The decline in crude inventories also resulted from an increase in inputs, which were up 139,000 b/d to 14.504 million b/d, a response to improved profit margins.

But the increase in crude inputs did not result in any major changes in refiner output, with the exception of residual fuel oil, suggesting the amount of coking capacity that remains offline in the U.S. remains ample. Production of resid was up 60,000 b/d to 669,000 b/d. Production of gasoline edged up 39,000 b/d to a level of 8.899 million b/d; showing a minor increase despite the fact that the NYMEX RBOB crack spread was running at about $14.50 per barrel.

The decline in output combined with a solid increase in demand resulted in a 2.177 million barrel decrease in gasoline stocks. Implied gasoline demand jumped 254,000 b/d to 9.205 million b/d week-over-week, a fairly seasonal occurrence, as was the stock decline. Implied demand is the amount of product that moves through the U.S. distribution system, not actual end consumption.

At 209.754 million barrels, U.S. gasoline stocks were still 9.905 million barrels above the five-year average and 13.134 million barrels above year-ago levels with about three weeks left to peak driving season.

Implied demand for middle distillates also rebounded sharply, climbing 268,000 b/d to 3.466 million b/d week over week. Still, on a four-week moving average, both gasoline and middle distillate demand were well below year-ago levels when the U.S. economy had substantially slowed. On a four-week moving average, gasoline demand of 9.132 million b/d was 323,000 b/d below year-ago levels while distillate demand of 3.339 million b/d was 872,000 b/d below year-ago levels, based on preliminary weekly data from EIA.

The upshot was that stocks of middle distillates dipped 650,000 barrels to 161.617 million barrels, a counter-seasonal occurrence. Both heating oil and ultra-low sulfur diesel inventories declined, while stocks of diesel were a bit higher. Inventories of middle distillates were 30.891 million barrels above the five-year average and 29.549 million barrels greater than year-ago levels, a daunting overhang of inventory.