Analysis of U.S. EIA data: Middle distillate stocks begin seasonal decline

New York - October 28, 2009

With seasonal factors beginning to take hold, U.S. middle distillate stocks fell 2.134 million barrels to 167.754 million barrels during the week ending October 23, an analysis of oil data released on Wednesday by the U.S. Energy Information Administration (EIA) showed.

Despite the decline, middle distillate inventories were 39.619 million barrels above the five-year average and 41.125 million barrels above year-ago levels, requiring a pick-up in heating oil demand for stocks to undergo a faster decline.

In the past four weeks, stocks of middle distillates have declined a cumulative 4.002 million barrels, a shallow decline based on historical norms.

But with the harvest well under way in the Midwest, stocks of diesel dropped 2.6 million barrels to 95.5 million barrels, with the lion's share of the decrease occurring in the Midwest. Stocks of ultra-low sulfur diesel edged up 400,000 barrels to 20.6 million barrels and inventories of heating oil were unchanged at 51.7 million barrels.

Contributing to the decline in middle distillate inventories was an increase in demand and a decline in production. Implied demand* for middle distillates climbed 150,000 barrels per day (b/d) to 3.637 million b/d week-over-week, a five-month high. On a four-week moving average, distillate demand at 3.552 million b/d was 13.1% below year-ago levels. Distillate production fell 106,000 b/d to 3.786 million b/d as refiners boosted gasoline yields.

Gasoline output jumped 377,000 b/d to 8.834 million b/d after two consecutive weeks of exceptionally low production, which suggested problems with fluid catalytic crackers rather than a conscious effort to throttle back on output given a Reformulated Blendstock for Oxygenate Blending (RBOB) crack spread that was higher priced than the heating oil crack. The entire increase in gasoline production was on the Gulf Coast, signaling the return of upgrading units from maintenance.

Gasoline stocks climbed 1.619 million barrels to 208.564 million barrels, leaving inventories 9.896 million barrels above the five-year average and 13.574 million barrels above year-ago levels.

Yet, total U.S. product stocks edged down 2.2 million barrels to 757.800 million barrels, slowing the rate of decline seen in the previous two weeks.

Total U.S. product stocks were still 62.246 million barrels above the five-year average and 76.795 million barrels above year-ago levels.

Total U.S. oil demand dipped 146,000 b/d to 18.523 million b/d, with only distillate and demand for residual fuel oil showing an uptick on the weekly data.

Despite the decline in overall petroleum demand, refiners upped throughputs 119,000 b/d to 14.448 million b/d, with increases registered along the Atlantic and Gulf Coasts.

But given the still-narrow contango** at the front of the New York Mercantile Exchange (NYMEX) crude futures curve, imports remained at relatively low levels. Crude imports rose 191,000 b/d to 8.89 million b/d, with the entire increase occurring along the West Coast. Crude imports on the West Coast jumped 670,000 b/d to 1.539 million b/d while imports in every other region dropped.

*Implied demand is the amount of product that moves through the US distribution system, not actual end consumption.

**Contango is the condition whereby prices for nearby delivery are lower than prices for future-month delivery.