Extract from crude oil:
US crude stocks fell by 0.24 mb w/w to 528 mb, still higher y/y by 36 mb. In fact, the draws were toned down by a 2.2 mb build in PADD 1 caused by persistently low runs. The headline draw was driven by lower imports (down by 0.75 mb/d w/w to 7.4 mb/d, lower y/y by 0.29 mb/d), which offset marginally lower runs (down by 20 thousand b/d w/w to 15.5 mb/d, lower y/y by 0.52 mb/d). The bulk of the draw was in PADD 3, where stocks fell by 2.4 mb w/w to 276 mb as imports dropped by 0.47 mb/d w/w to 2.7 mb/d offsetting sharply lower runs, which fell by 0.21 mb/d w/w and 0.32 mb/d y/y, to 8.2 mb/d. The drop in imports was likely due to lower arrivals of Arab Gulf crude post the OPEC cuts and to harsh weather along the Houston Ship Channel last week that curtailed lightering operations, meaning ships were unable to discharge cargo into onshore tankage. Thus, the volume of crude floating on tankers anchored in offshore lightering areas rose by around 5 mb w/w last week. Imports appear moderately higher so far this week as lower arrivals from the Arab Gulf are somewhat offset by tankers discharging crude they were unable to offload last week. Notwithstanding the weekly gyrations, we expect waterborne imports to continue to fall over the next two weeks as the impact of production cuts made in the Arab Gulf in January begin to manifest themselves in long-haul refining markets. However, we also expect to see high volumes of crude transferred from PADD 2 to PADD 3 via pipeline as surging Canadian imports into PADD 2 pass through to the Gulf Coast. Indeed, the spread between WCS in Hardisty and WCS at ECHO in Houston is at its widest level since late 2015 and the incentive to ship this material to Houston instead of Cushing is similarly strong. The USGC medium sour market continues to benefit from the looming shortage of Arab Gulf imports, with prompt Mars trading up to -$1.73 per barrel. The gains in Gulf of Mexico sours could have been far more impressive over the last few weeks had it not been for large growth in Gulf of Mexico output so far this year due to debottlenecking at Mars, the early start of BP’s Thunder Horse expansion, and the imminent release of 10 mb of sour crude from the US SPR from April. Last week, releases from the SPR totalled 0.8 mb of light sweet crude, taking the total volume of oil released in March to 0.92 mb, of a total of 6.4 mb due across March and April.
Extract from oil products:
US gasoline stocks drew for the fourth consecutive week amidst refinery outages, falling by 3.1 mb to 246 mb w/w, leaving inventories at a larger 3.4 mb y/y deficit. The largest stockdraws were in PADDs 1 and 5, (1.8 mb and 1.6 mb, respectively). Imports reached 0.57 mb/d, after falling to a record low the week prior, leaving the four-week average at 0.34 mb/d into PADD 1. With the arb still shut, imports should stay weak, supporting further draws in PADD 1. The US West Coast looks tight, and with CARBOB diffs in Los Angeles at more than a 10 cent per gallon premium to futures, Jones Act tankers may start moving product there from the Gulf Coast. The recent winter storm along the East Coast will dent short-term demand, though given we expect higher gasoline exports due to improving Mexican demand, the effect on stocks may be limited. We retain our view that summer RBOB needs to rise against summer Eurobob to entice imports into the US.