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Light product stocks grew through July

Sam Fletcher
OGJ Senior Writer

Light product inventories—gasoline, distillate, and jet fuel—grew for 9 consecutive weeks through the end of July “due to high production levels, increased gasoline imports (including blend stocks), and lackluster demand,” said Jacques Rousseau, managing director of equity research, RBC Capital Markets, Reston, Va.

The Energy Information Administration reported commercial US crude inventories fell 2.8 million bbl to 358 million bbl in the week ended July 30. That exceeded the Wall Street consensus for a drop of 1.7 million bbl. Gasoline stocks advanced 700,000 bbl to 223 million bbl despite traders’ expectations of a 1 million bbl loss. Distillate fuel inventories climbed 2.2 million bbl to 169.7 million bbl in that same period, surpassing a consensus for a 1 million bbl build.

Imports of crude into the US fell 1.5 million b/d to 9.6 million b/d that week, said EIA. In the 4 weeks through that date, imports averaged 10 million b/d, up 494 million b/d from the comparable period in 2009.

The input of crude into US refineries increased by 113,000 b/d to 15.6 million b/d in the latest week with units operating at 91.2% of capacity, up from 90.6% the previous week. Gasoline production decreased to 9.4 million b/d. Distillate fuel production increased slightly to 4.4 million b/d.

However, total production of light products decreased 1.7%. Imports of finished product decreased 10,000 b/d in that week, Rousseau reported Aug. 4. “Gasoline inventories are 7% ahead of their 5-year average for this calendar week while distillate stocks are 25% ahead of their 5-year mean,” he said.

Gasoline consumption for the week ended July 30 was 3% higher than the comparable week in 2009. “We maintain our near-term sector view that after a high level of US refinery maintenance in the spring, we expect improved margins to attract increased supply in the coming weeks, and coupled with above-average inventory levels, we anticipate declining refining margins in the summer, a negative for refining stocks,” said Rousseau.

He estimated the average US refining margin increased to $9.96/bbl in the week ended July 30 from $9.53/bbl previously. That compares with average margins of $9/bbl in 2009 and $12/bbl in 2008. He estimated the differential between US benchmark West Texas Intermediate and Maya crude averaged $9/bbl during the week, compared with average spreads of $5/bbl in 2009 and $16/bbl in 2008. The RBC Refiner Stock Price Index increased 3 in the week ended Aug. 3.

‘New $80/bbl range’
On Aug. 2, the first trading day of this month, the front-month crude contract busted through resistance at $80/bbl for the first time since early May to climb above $81/bbl on the New York Mercantile Exchange. The September contract for benchmark US sweet, light crude escalated by $2.39 to close at $81.34/bbl.

It continued climbing Aug. 3 to close at $82.55/bbl as the dollar fell 0.4% against the euro, and unfavorable economic indicators fanned fears of a stalling recovery. In London, the September IPE contract for North Sea Brent crude gained $1.86 to $82.68/bbl, at a premium over NYMEX crude for the same month.

“The overhang of [crude] stocks in the US should continue to pressure WTI, and we expect WTI to remain at parity or discount to Brent for a lengthy period of time,” said Olivier Jakob at Petromatrix, Zug, Switzerland.

“Oil prices are familiarizing themselves with their new-found range [above $80/bbl],” said analysts at Barclays Capital Commodities Research in New York. The Brent-WTI differential moved to “positive territory” for the first time since June 22 “as maintenance periods in the North Sea fields triggered fears over short-term supplies in the region, with the prompt month differential falling to just 8¢ from 22¢ on Aug. 2, Barclays analysts said.

“Currently, the rebalancing of the physical oil market remains on track, and thus we see $80 and above as the price aptly befitting fundamentals,” they said.

(Online Aug. 9, 2010; author’s e-mail: samf@ogjonline.com)


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