ANALYSIS: US crude oil inventories move higher as exports test 2021 lows

US crude oil inventories unexpectedly climbed in the week ended July 30 as exports fell to 12-week lows, US Energy Information Administration data showed Aug. 4.

Total commercial crude oil stocks climbed 3.63 million barrels to 439.23 million barrels, narrowing the deficit to the five-year average by 1 percentage point to around 6%.

The build was concentrated on the US Gulf Coast, which saw stocks climb 3.1 million barrels, and on the West Coast, where inventories were up 1.4 million barrels.

Notably, inventories at the NYMEX delivery point of Cushing, Oklahoma, fell for a seventh straight week, declining 543,000 barrels to 34.9 million barrels, an 18-month low.

Front-month NYMEX September WTI settled Aug. 4 down $2.41 at $68.15/b, and ICE October Brent declined $2.03 at $70.38/b.

The crude build comes as exports fell 590,000 b/d to 1.9 million b/d, a 12-week low.

US crude exports continue to see pressure from a significant weakening of arbitrage incentives earlier this summer. The ICE WTI-Brent spread, an indicator of the competitiveness of US crude abroad, narrowed to minus $1.51/b on July 1, marking the weakest discount for WTI since October 2020.

Due to the lag time between a cargo's sale and its loading, US outbound crude volumes are likely depressed due to a slowdown in bookings during June and early July. But the ICE WTI-Brent spread has since widened to around minus $2.40/b, potentially indicating brighter days ahead for US crude exports.

Refinery demand edges higher, but remains weak

Total US net crude inputs edged 50,000 b/d higher to 15.92 million b/d, snapping a four-week downtrend but leaving inputs more than 5.5% behind the five-year average, out from 4.3% during the week prior.

Refinery utilization averaged 91.3% of total capacity, up 0.2 percentage point from the week prior, though falling around 1% behind average. The slide below the five-year average is notable as strong refined product cracks had seen refiners running downstream units that has kept utilization rates consistently above average since late May, even as refinery net crude inputs remained historically weak.

Implied demand for all refined products was up 50,000 b/d at 21.17 million b/d, a four-week high and just shy of 2% below the most recent peak of 21.55 million b/d during the week ended July 2.

Implied demand for gasoline demand jumped 5% to a four-week-high of 9.78 million b/d, however distillate fuel demand was down nearly 17% on the week at 3.62 million b/d.

Gasoline stocks fall, distillate volumes rise

These divergent demand trends were reflected in inventory changes. Total US gasoline stocks declined 5.29 million barrels to 228.87 million barrels, while distillate stocks climbed 830,000 barrels to 138.74 million barrels.

NYMEX September RBOB settled Aug. 4 down 2.08 cents at $2.2500/b, and September ULSD declined 5.23 cents to $2.0741/gal.

The gasoline stock draw was the largest since early July and left stocks 3.2% behind the five-year average, opening the widest deficit since late March.

The draw was concentrated on the US Atlantic Coast, which saw a 3.51 million-barrel decline that widened the deficit to the five-year average to 6.5% from just 0.7% the week prior. USAC stocks are now the tightest since May.

Weekly gasoline imports fell to a five-week low 850,000 b/d, however the four-week moving average of imports averaged 1.04 million b/d, just 4% shy of the 10-year high 1.09 million b/d seen the week prior.

The four-week average of imports into USAC slipped 2.4% on the week to 840,000 b/d, but were still near two-year highs seen the week prior.

This strong USAC import demand has contributed to a thinning of European tonnage lists, pushing transatlantic clean MR tanker rates to a three-month high of around world scale 150.