With colder temperatures finally hitting much of the northern US last week, many in the oil market will have their eyes on US distillate stocks when the US Energy Information Administration releases its weekly inventory data Wednesday.
While analysts surveyed Monday by Platts expect total US distillate stocks to fall 1.1 million barrels -- in line with the five-year average of EIA data -- ULSD futures remain firmly in contango, suggesting prompt supply is more than adequate to satisfy demand.
Over the past 30 days the prompt month-second month NYMEX ULSD contango has averaged 2.46 cents/gal. This time last year, prompt ULSD was backwardated by more than 5 cents/gal.
Stocks of low and ultra low sulfur diesel on the Atlantic Coast -- home of the New York Harbor-delivered NYMEX ULSD contract -- were 51.7 million barrels the week ended November 13, a 110% surplus to the five-year average for the same reporting period and more than double year-ago levels.
A strong crack spread and positive refining margins suggest refiners are unlikely to pull back on supply. The January ICE Brent-ULSD crack traded between $14-$15/b last week. And while that's down from over $20/b a year ago, it is helping to support refining margins in the region. For example, US Atlantic Coast cracking margins for Canadian Hibernian averaged just over $6/b last week.
Platts margin data reflects the difference between a crude's netback and its spot price. Netbacks are based on crude yields, which are calculated by applying Platts product price assessments to yield formulas designed by Turner, Mason & Co.
This comes at a good time for Irving Oil's 300,000 b/d Saint John, New Brunswick, refinery, which recently completed a massive 60-day turnaround -- the largest in company history. Irving is a major supplier of refined products to the New York Harbor market.
And with New York Harbor barges holding a steep premium to the US Gulf Coast, supply up the Colonial Pipeline is unlikely to slow down anytime soon. New York Harbor barges averaged a 7.17-cent/gal premium to USGC pipeline ULSD last week, more than enough to cover the 5-cent/gal transit fee Colonial Pipeline charges.
A spate of outages knocking fluid catalytic crackers offline last week likely cut into US gasoline stocks.
Citgo shut an FCC at its 427,800 b/d refinery in Lake Charles, Louisiana, and Valero shut the FCC at its 335,000 b/d Port Arthur, Texas, refinery for maintenance. Valero also shut an FCC at its 314,000 b/d Wood River, Illinois, refinery.
On the West Coast, Tesoro shut the FCC and alkylation units at its 104,500 b/d Wilmington, California, refinery.
Analysts surveyed expect US gasoline stocks to have fallen 400,000 barrels last week.
CRUDE STOCKS SEEN FALLING
US crude stockpiles are likely to have decreased last week because of greater refinery demand, pushing inventories lower for the first time since mid-September.
A survey of analysts said Monday that US commercial crude stocks are expected to have decreased 200,000 barrels in the week that ended Friday.
Analysts surveyed by Platts expect total US run rates to have increased last week, up 0.4 percentage point to 90.7% of operable capacity.
Refinery utilization rose above 90% the week ended November 13, signaling refiners have returned from seasonal maintenance and should begin exerting downward pressure on stocks.
Valero completed maintenance last week on a 90,000 b/d crude distillation unit at its Houston refinery, Platts reported.
However, the Phillips 66-operated 314,00 b/d refinery in Wood River, Illinois also experienced an unplanned outage last week, sources said.
A crude distillation unit, vacuum distillation unit, hydrocracker, ULSD hydrotreater and coker were impacted.
One factor keeping upward pressure on stockpiles was a likely rebound in imports, which averaged below the year-to-date average the last three reporting periods.
A persistent decline is seen as unlikely considering the attractiveness of importing crude recently, as measured by a relatively tight ICE Brent/WTI spread.
The ICE Brent-WTI spread has ranged from around $2-$4/b since mid-September after having been as wider than $7/b in August.
