It looks like a combination of shale crude oil production and inventory drawdowns have been backing out crude oil imports over the past two months. Gulf Coast refineries are leading the way to crank up utilization, increase diesel exports and pull crude oil inventories down from the stratosphere. A lot of this activity seems to be bypassing Cushing. Meanwhile the Gulf Coast is at the center of two big events this week – a tropical storm and a huge refinery fire. Today we continue our analysis of crude inventories.
On Monday we started an examination of the Energy Information Administration (EIA) weekly Petroleum Supply Report (WPSR) that is released each Wednesday and reflects US petroleum supply data for the prior week. If you missed that blog then you can read it here to catch up. Our analysis of crude oil inventory data began with a look at the Summary Supply report data in Table 1. We walked through calculating the US crude supply balance by adding up net imports (imports minus exports), crude production and the change in crude inventories (a draw or a build). We compared that supply number with demand based on refinery crude inputs. Last week (week ending August 17 2012) crude oil demand exceeded production and imports leading to a stock draw of 5.4 MMBbl for the week or 773 Mb/d.
Now we are going to look more closely at the crude oil inventory data broken down by individual refining region within the US. We start by identifying the data in the WPSR report. You will recall that this report is published every week in pdf form and that the data is also available in spreadsheet and html formats from the EIA website here. The table below is a snapshot of last week’s pdf report showing the crude oil inventory data that can be found in Table 4 -- “Stocks of Crude Oil by PAD District”. The report values are in millions of barrels (MMBbl).
The first two values to note in the report are the highlighted #1 Total Commercial Crude Stocks– and #2 the Stock Draw/Build MMBbl. Total commercial crude stocks of 360.7 MMBbl include “those domestic and Customs-cleared foreign crude oil stocks held at refineries, in pipelines, in lease tanks, and in transit to refineries” (that’s the EIA speaking). Commercial crude stocks do not include the strategic petroleum reserve (SPR) that is nearly double the size of commercial stocks (696 MMBbl) and is only released at the discretion of the federal government. The #2 stock draw/build is the difference between the current week total commercial crude stocks and the previous week. If the value is negative, a stock draw has taken place (as is the case here with minus 5.4 MMBbl) and if the value is positive then a stock build occurred. The 5.4 MMBbl stock draw during this week was unexpected and as we learned in part I of this blog, was caused primarily by a drop in the volume of imported crude leading refiners to use up inventory.
The third value highlighted on the table is #3 Cushing Stocks. This value is separated out in the report because the storage facility in Cushing Oklahoma is the largest in the US and the most significant for the crude oil market (see You’re Doin Fine Oklahoma! For more on Cushing crude oil storage facilities). In this table, Cushing stocks were unchanged at 45.2 MMBbl. The crude market is paying particular attention to Cushing stocks these days because they are at historically high levels and have been building steadily since January of this year. That stock build has resulted from higher Canadian and domestic crude production exceeding refinery demand in the Midwest and being unable to move to the Gulf Coast to compete there with imported crude. High inventory levels at Cushing have placed downward pressure on the price of WTI crude – the Cushing benchmark - that has traded at around $15-$20 discount to Gulf Coast crudes. As we have talked about before, the opening up of the Seaway Pipeline (see A Drop in the Ocean and Seaway Reversal and Expansion Project) in June of this year to allow 150 Mb/d of crude to leave Cushing for the US Gulf (Houston) was anticipated to relieve the Cushing stock build. So far however, Cushing stocks have only leveled off and are not falling significantly. The expansion of the Seaway pipeline capacity to 400 Mb/d in January 2013 should lead to a more dramatic draw in Cushing inventories.
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