USA
After registering a draw in the previous month, US commercial oil stocks experienced a build of 22 mb in May to stand at 1,028.8 mb. This level was 2% higher than the year-ago level and 5% higher than the five-year average. The stock-build stemmed entirely from a considerable rise of 10.9 mb in product inventories as crude oil inventories declined slightly.
A stock-draw occurred in crude oil which ended the month with a draw of 0.3 mb in May on a monthly basis with the level being at 346.5 mb. Nevertheless, inventories remained at comfortable levels of 4% and 10% above the upper end of the one-year and five-year average, respectively. Days of forward cover remained almost the same at 22.5 days, a cushion of 6% and 12% against one year earlier and the five-year average. Refinery runs increased by 526,000 b/d in May boosting the utilization rate to 90.3% from 87.2% in April, along with a rise in crude oil imports.
On the product side, gasoline inventories experienced sustainable growth during May, rising by 10.9 mb from April leaving the level at 210.2 mb, which was 5.5 mb and 1.94 mb below the one-year and the five-year average. This is partly explained by a 42% boom in imports, especially of blended components. In addition, gasoline production recovered during May to stand at 8.9 mb, which is higher than a year ago following a rebound in the refinery runs. In terms of forward cover, gasoline stocks stood at 22.4 days, a drop of 0.8 and 1 day below last year and the five-year average. Although supply concerns owing to the phasing out of MTBE have diminished, some worries persist in the gasoline market related to the fact that production figures published by the EIA appear to look inflated due to the inclusion of imports of blending components that are used in finished gasoline. Blending component imports surged by 57.3% in May from April (four-week-average). The increase in imports was partly due to the use of ethanol to produce reformulated gasoline as well as the need to meet demand. Finally, gasoline inventories are expected to continue rising as a preventive measure against the impact of hurricanes. As stated in the previous MOMR, the final outcome in the gasoline market will heavily depend on a number of factors such as forecast demand and availability of imports, the response of refiners to higher margins, together with the impact of the switch to ultra-light sulphur diesel (ULSD) and the severity of the hurricane season. Following last month’s draw, distillate stocks rose 5.8 mb to 120.4 mb or 8.51% higher than the five-year average. This unexpected upward movement was fostered by higher diesel output which rose by 232,000 b/d in May relative to the previous month. By contrast, heating oil production and total distillate imports declined. This phenomenon seems to be explained by the switch to ULSD, given the difficulties to find supply of ULSD elsewhere, which led to increased production.
In the week ended 9 June, total commercial inventories in the USA increased by 6.7 mb from the previous week to 1,036.40 mb or 3% and 6% against the year-ago level and the five-year average. This resulted from a build in gasoline and distillate stocks while crude oil saw a draw of 0.98 mb although recording a build of 5% and 11% over last year and the five-year average to remain at comfortable levels. The drop in crude oil stocks was linked to a recovery in refinery runs and the normalisation of activities at the Corpus Christi refinery after the cut which occurred in the previous week. The lower imports of 330,000 b/d or 8% below the five-year average also contributed to the picture Exceeding the forecast of the EIA, gasoline inventories saw a built of 2.8 mb, which left the level at parity with the five-year average for the first time in 8 weeks. Forward consumption of gasoline increased by 0.22 days to 22.8 days or at parity relative to the same time in the previous year. The usual pattern of gasoline stocks implies an upward movement until the second half of June and a drop thereon owing to booming summer demand.
Some analysts suggest that gasoline stocks will be in the middle of the average range for the driving season, while others maintain the view that some tightness in the US gasoline market will occur due to an earlier decline in gasoline production this year compared to last year and the difficulties to maintain the high import levels of gasoline. If this is the case, a fall in stocks is expected which would exert pressure on domestic refiners and blenders to increase gasoline volumes in order to meet the expected greater domestic demand in July and August, which in turn would result in higher wholesale margins. Concerning distillate inventories, a surplus of 2.11 mb took place during this week being above the upper end of the average range for this time last year. Diesel stocks increased by 300,000 b to 75.6 mb or 7% higher than the five-year average which is attributable to the 67,000 b/d gain in imports from the previous week and to rising production. The surplus in diesel inventories may be associated with precautionary sentiments about the introduction of new diesel specifications.
Western Europe
In May, total commercial oil stocks in the Eur-16 (EU-15 plus Norway) fell by 13,000 b/d to stand at 1,148.2 mb, which was 3.7% above the upper end of the average range for this time of the year and 8.4% above the five-year average. This came from stock-draws on both crude oil and middle distillates, while gasoline inventories experienced a modest build.
Crude oil inventories declined by 1.5 mb to 487.4 mb. This corresponds to 1.6% below one year earlier but still 6% above the five-year average. The end of the spring maintenance helped crude runs to rise by 300,000 b/d, with the capacity utilization rate increasing above 90% for the first time since January. Refiners responded to wide crack spreads of gasoline and middle distillates, but some outages took place in major refineries in Rotterdam and Italy.
Gasoline inventories in Europe remained almost unchanged with only a slight improvement of 0.8 mb in May to stand at 140.5 mb as a result of higher refinery output and were almost at parity with last year’s level, but below the five-year average. According to Euroilstock, this trend is explained by the greater domestic demand and continuous exports to the USA. It must be noted that there was a drop in independent stocks in the Rotterdam area which had fallen by 20% during the last three months. Middle distillate stocks declined by 0.6 mb or 20,000 b/d in May despite a considerable increase in output, to stand at 381 mb or 3.5% and 10.8% above the one-year level and the five-year average. Heating oil sales were up as a consequence of an unusually cold spell in Scandinavia. Likewise, Russian gas exports were lower. Residual fuel oil inventories remained almost unchanged at 112 mb, a slight fall of 0.1 mb to stand 2 mb lower than the one-year and the five-year average. Lower exports from Russia and a movement of cargoes to Asia-Pacific seem to account for this outcome. The fuel oil discount to BFO narrowed from $20/b to $16$/b over last month, but the slowdown of utility demand for low-sulphur fuel oil exerted downward pressure on prices this month too.
Japan
Commercial oil inventories in Japan rose by 3.1 mb or 0.1 mb/d to reach 171.6 mb in April, following a 5.9 mb build in the previous month. Stocks looked comfortable at 12.2% and 1.4% above last year and the five-year average, respectively. The stock-build came entirely on the back of crude oil as total product inventories inched down to 58.1 mb.
Commercial crude oil stocks rose by 4.6 mb, which was considerably lower than the previous month’s surplus of 10.3 mb, to stand at 113.5 mb, but in contrast to last month, this level was 9.5% higher than the y-o-y average and 5.8% above the five-year average. This occurred despite a considerable fall in the refinery utilization rate as a result of the fact that imports fell by 14.2% relative to March.
Product stocks saw less of a draw compared to the previous month falling 1.5 mb or 0.05 mb/d in April to stand at 58.1 mb, which was entirely related to a weaker domestic demand which dropped by 11.9% relative to the previous month amid a 6.6% boost in imports since the strong spring refinery maintenance led to a drop in the utilization rate of 7.6% to 86.9%. Nevertheless, the surplus against the year-ago level fell to 4.1% from 13.2% in March. The more moderate draw on Japanese middle distillate inventories is explained by a milder draw on kerosene which was accompanied by a worsening in jet fuel and gasoil stocks which counterbalanced the recovery in Fuel Oil A and BC and lubricating oil stocks. Jet fuel production increased by only 2.9% compared to 72% last month, which occurred together with a hefty 33.6% drop in domestic demand. While kerosene production remained almost unchanged, sluggish demand implied an improvement from the previous month. Gasoline stocks fell by 2.0% or 0.3 mb to stand at 14.1 mb, which meant a reduction in the cushion against the year-ago level which fell to 0.7% from 3.5% in March. This was the outcome of a sharp reduction in imports of reformulates and ultra-low sulphur gasoline by refiners, which only grew by 23%, that followed the huge increase of 482% recorded in the previous month in preparation for heavy refinery maintenance amid some refinery outages at the beginning of April. This outpaced the drop in domestic demand. The difficulties to ship product cargoes from Singapore and the shortage of cargoes that fulfill the sulphur specifications required by the Japanese market also added to this phenomenon.
