Report: Expect crude oil stocks to decrease

December 7, 2016 08:37 AM
Weekly Energy Markets Report

The API released its data late Tuesday afternoon reporting a larger than expected draw in crude oil stocks with a larger than expected build in distillate and a build in gasoline inventories that was as expected. Crude oil stocks in Cushing showed a large build.

As shown in the table below, the API reported U.S. crude oil stocks decreased by 2.2 million barrels with Cushing inventories increasing by about 4 million bbls on the week. They also reported a 4 million billion barrel (bbl) build in distillate fuel and a 0.8 million bbl build in gasoline stocks. Total combined inventories of crude oil and refined products were higher for the week and outside the range of market expectations also shown in the table above.

I am expecting crude oil stocks to decrease by about 1.8 million barrels. If the actual numbers are in sync with my projection the year over year comparison for crude oil will now show a surplus of 32.7 million barrels while the overhang versus the five-year average for the same week will come in around 123 million barrels.

I am expecting crude oil inventories in Cushing, Okla., to show a build this week as the net inflow (inflow-outflow) into Cushing increased last week. Even with some storage capacity still available in Cushing the economics of storing oil is not currently very interesting.

Canadian crude pipeline flow to Cushing increased by 97,957 bpd to 380,168 bpd last week, while volumes to Patoka, IL, on TransCanada’s Keystone Pipeline were 82,640 bpd below the previous week. The volumes moved to Patoka were 27.9% below the year-ago week, while volumes moved to Cushing were 92.5% above the same week last year.

Canadian crude imports to the United State increased for the week ending Nov 25 by 28,000 bpd to 3.283mn bpd and are now 166,000 bpd below the record-high reached earlier this year, per the U.S. Energy Information Agency.

Last week, Canadian heavy crude price differentials were stronger versus West Texas Intermediate. The Western Canadian Select crude price traded around January WTI CMA minus $15.45/bbl at the end of the week, a narrowing of the discount by $0.15/bbl compared to the previous week.

According to Genscape, strong increase last week in the pipeline net flow (inflow minus outflow) at Cushing, which could result in inventories increasing in Cushing according to Genscape pipeline data only. The net flow increased by about 3.4mn bbls for the week ending Dec 2 compared with an increase of 2.1mn bbls the previous week.

With refinery runs expected to increase I am expecting a build in gasoline stocks. Gasoline stocks are expected to increase by 2.1 million barrels, which would result in the gasoline year over year surplus coming in around 10.5 million barrels while the surplus versus the five-year average for the same week will come in around 13.4 million barrels.

Distillate inventories are projected to increase by 1.8 million barrels even as exports of distillate fuel out of the U.S. Gulf were steady last week. If the actual EIA data is in sync with my distillate fuel projection inventories versus last year will likely now be about 6.6 million barrels above last year while the surplus versus the five-year average will come in around 27.8 million barrels.

The following table compares my projections for this week's report with the change in inventories for the same period last year. As you can see from the table last year's inventories are mostly in directional sync with the projections. If the actual data is in line with the projections, there will only be modest changes in the year over year inventory comparisons for everything in the complex.

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