Extract from crude oil:
Due to this massive flow change into Cushing (including higher flows on Pony Express of close to 0.38 mb/d due to a Q4 18 expansion of 80 thousand b/d), we have revised our November and December forecasts. We now expect builds of 4.4 mb and 0.6 mb respectively for November and December. The lower builds in December are due to hefty outflows on Seaway and Marketlink given all arbs from Cushing to the USGC have been wide open. If the Seaway Twin pipeline flows more than our expectation of 0.87 mb/d in December, there is a possibility that Cushing doesn’t build at all next month. Still, it is very likely that Cushing ends 2018 with stocks close to 40 mb, some 8 mb higher than we had initially expected over the summer. This sets up for very bearish H1 19 Cushing balances, with no new additional outlet for the hub but more local production still set to flow into Cushing. Moreover, a heavy refinery maintenance schedule on the USGC (+0.15 mb/d y/y) over Q1 19 (0.53 mb/d in January, 1 mb/d in February, and 0.55 mb/d in March) will likely weigh on outbound arbs from the hub during those months, exacerbating the builds. The only relief (albeit not till Q2 19) could come in the form of a Marketlink expansion (after its 9 November 2018 binding open season), possibly by just above 0.1 mb/d, as this could prevent tank tops in Cushing next summer. Without Marketlink, the writing is on the wall for WTI timespreads and WTI-Brent spreads, with Cushing effectively landlocked once again.
Extract from oil products:
US gasoline stocks fell by 1.4 mb w/w to 226.6 mb, with PADD 3 posting the largest w/w draw (1.1 mb) to finish the week at 81.8 mb. Despite the draw, US gasoline stocks are 16.2 mb higher than this time last year, with PADD 1 closing the week 11.7 mb higher y/y. USGC gasoline cash differentials have fallen for nine straight days due to high production in an already oversupplied market. Weak differentials in the USGC are causing Line 1 space values along the Colonial pipeline to soar to levels not seen since December 2016. The arbitrage from the USGC to USEC is open for all grades of gasoline and the gasoline oversupply could have been the reason for the lower-than-expected runs in PADD 3. Cash differentials for gasoline in Chicago have strengthened, with inter-regional spreads implying the arbitrage along the Explorer Pipeline is open. As PADD 2 winds down the current maintenance programme with gasoline inventories near seasonal lows, inventories are expected to seasonally build through February.