US crude inventories see a 5.9 million-barrel build as exports slow: EIA

US crude oil inventories climbed the week ended July 7, supported by a slowdown in exports, US Energy Information Administration data showed July 12.

Crude inventories increased 5.9 million barrels to 458 million barrels, counter to analysts' expectations of a 1 million-barrel draw.

The US Gulf Coast accounted for most of the build, with inventories in the region climbing 7.9 million barrels to 252.5 million barrels.

Crude stocks are now 4.4 million barrels above mid-March levels despite refiners recently exiting a prolonged maintenance period, which contributed to analysts' forecast of a dip in inventories. The latest build left US commercial crude inventories 1.3% above the five-year average of EIA data.

EIA data showed US refinery utilization rates up 2.6 percentage points at 93.7% of capacity,

Refinery shutdowns in the US declined by 237,000 b/d to about 582,000 b/d. There was only a handful of planned maintenance activities persisting at Citgo's Corpus Christi, Texas, and Calcasieu Refining Co. Lake Charles refineries, according to a July 7 report by S&P Global Commodity Insights.

US crude exports fell 1.8 million b/d to 2.1 million b/d, EIA data showed. However, weekly exports are volatile. Kpler vessel tracking data shows US crude exports rising to roughly 2.8 million b/d the week ended July 14 and 5.3 million b/d the following week.

Also, another 401,000 barrels was pulled from the US Strategic Petroleum Reserve the week ended July 7. SPR stocks have fallen 24.8 million barrels to 346.8 million barrels since March 24 as part of a congressionally mandated sale of 26 million barrels, with deliveries originally expected to be completed by the end of June.

US crude imports were also down 1.2 million b/d to to 5.8 million b/d, the largest dip seen since early June. US crude production at 12.3 million b/d was down 100,000 b/d.

Tight product stocks keep cracks elevated

Strong export demand was also helping to keep refined products inventories tight, with US gasoline inventories mostly unchanged at 219.5 million barrels. Analysts had been expecting a 1.1 million-barrel draw.

The bulk of gasoline stock draws were seen on the US Gulf Coast, where inventories fell 1.6 million barrels to 82.5 million barrels. US Atlantic Coast inventories were also down 1.3 million barrels to 55.2 million barrels, leaving stocks 14% below the five-year average.

Tight USAC inventories have supported the New York-delivered NYMEX RBOB contract. The NYMEX August RBOB crack against WTI settled at $36.26/b July 12, up from roughly $26/b in early May.

US gasoline exports, which primarily originate from the USGC, were up 253,000 b/d at 1.1 b/d the week ended July 7, EIA data showed. Gasoline imports slipped for the fourth consecutive week, down to 779,000 b/d from 851,000 b/d.

Still, Kpler vessel tracking data shows USAC gasoline imports fluctuating in the next two weeks, as relatively high USAC prices have kept arbitrages open. Currently, there is a $7.23/b incentive to ship Northwest European gasoline into the US Atlantic Coast, according to S&P Global analytics data.

In refinery activity, refiners have been maximizing gasoline yields heading into peak summer driving season in the US, even as refinery runs have slipped on several glitches.

US refiner and blender net gasoline production at 10.1 million b/d was down 158,000 b/d on the week, and roughly 3% above the five-year average, EIA data showed.

Net refinery crude inputs at 16.7 million b/d were up 629,000 b/d on the week, and up 1.7 million b/d since early March as refiners have exited maintenance.

"During the week ended July 7, refinery shutdowns in the US declined by 237,000 b/d to about 582,000 b/d. There was only a handful of planned maintenance activities persisting at refineries, such as Citgo's Corpus Christi, Texas, and Calcasieu Refining Co. - Lake Charles," S&P Global analysts said in a report.

"Refinery outages are projected to remain flat at around 582,000 b/d for the week ending July 14, and barring any major unplanned outages, the level of downtime in the region is expected to trend lower in the coming weeks," the analysts said.

Refiners have every incentive to maximize runs considering current margins. The WTI MEH cracking margin on the US Gulf Coast averaged $16.40/b for the week ended July 7, while the Western Canadian Select coking margin in the Midwest averaged $28.36/b, S&P Global data shows.

US distillate inventories were expected to climb 150,000 barrels according to analysts polled by S&P Global, but the weekly data surpassed the estimates, climbing 4.8 million barrels to 118.2 million barrels.

The gains were largely driven by a 2.2 million-barrel build seen on the USAC, putting stocks at 28.9 million barrels, EIA data showed.

Despite the build, USAC distillate stocks remain at a 32% deficit to the five-year average of EIA data.

The NYMEX August ULSD crack spread against WTI settled at $33.43/b July 12, down 26 cents on the day, but up from $26.50/b May 31.

"As long as the market remains in backwardation, the pressure on the US to export ULSD is expected to persist, as storage is less desirable. Consequently, we should anticipate ongoing pressure on the USGC diff to stimulate exports," said Sparta Analyst James Noel-Baeswick.

US distillate exports were up 198,000 b/d at 1.5 million b/d, reflecting strong overseas demand. US distillate production at 5.1 million b/d was up 236,000 b/d on the week.