US crude stocks show surprise build on weakened refinery demand, strong imports

US crude oil inventories realized a counter-seasonal build during the week ended July 1 amid flagging refinery demand and stronger imports, US Energy Information Administration data showed July 7.

Total US commercial crude stocks climbed 8.23 million barrels in the week ended July 1 to 423.8 million barrels, the EIA said. The counter-seasonal build pushed stocks to an eight-week high but still left them 10.4% behind the five-year average for this time of year, in from 12.7% the week prior.

Crude stockpiles moved higher in all regions outside of the Rockies but the build was concentrated on the US Gulf Coast and Midwest, where stocks respectively climbed 5.56 million and 2.23 million barrels.

Inventories at the NYMEX delivery point of Cushing, Oklahoma, edged 70,000 barrels higher to 21.33 million barrels, snapping four consecutive weekly draws that had pushed stocks to their lowest since October 2014.

Contributing to the build was a counter-seasonal 230,000 b/d decline in refinery net crude demand to 16.44 million b/d. Refinery crude demand has steadily lost ground to the five-year average in recent weeks, with the four-week moving average hovering around normal in late June after having been as much as 1.5% above normal in late May.

Refinery utilization also saw a counter-seasonal 0.5 percentage point dip to 94.5% of total capacity, however nationwide utilization rates remain strong at nearly 4% above the five-year average. US Atlantic Coast utilization is especially strong at 99.2% of capacity. While USAC utilization has reached this level as recently as during the week ended June 3, it has only ever been higher once in records stretching back to 2010: the week ended Nov. 10, 2017.

US refining margins dropped substantially for the week ended June 1 as gasoline prices weakened ahead of the Fourth of July holiday weekend. USGC WTI MEH cracking margins averaged $42.13/b in the week to July 1, down from $47.00/b the week prior, according to margin data from Platts Analytics.

Meanwhile, US crude imports jumped 14% from the week prior to 6.84 million b/d. The bulk of this increase was seen in the Midwest, where imports reached a four-month-high 3.09 million b/d.

Nationwide gasoline inventories fell 2.5 million barrels to 219.11 million barrels, EIA said, as product supplied, EIA's proxy for demand, climbed to a year-to-date high 9.41 million b/d.

This surge in implied demand likely represents downstream stockpiling ahead of the July 4 Independence Day holiday, and as such is unlikely to indicate a reversal of the general downward trend in gasoline demand seen in recent weeks. The four-week moving average of implied gasoline demand is down slightly from its early-June peak and remains more than 4% behind the five-year average.

Furthermore, according to data from GasBuddy, which compiles real-time consumer data at over 150,000 US gas stations, July 4 gasoline demand was 10.5% below that of the week earlier, and 9.2% below that of the average of the last four Mondays.

US distillate stocks also saw a counter-seasonal draw amid strong demand, falling 1.27 million barrels to 111.14 million barrels. Total product supplied for distillates surged 810,000 b/d to 4.38 million b/d, a 15-week high and more than 16% above the five-year average.