Extract from crude oil:
The prompt Cushing outlook looked balanced to mildly bullish last week following the rally in Midland differentials, which in our view should have resulted in lower flows on the Basin pipeline into Cushing (see Data review: US Department of Energy, 30 January 2019). But this week, things have gradually become more bearish at the front, reflected in the 1.4 mb w/w build in Cushing stocks to 42.6 mb by end-January. Last week, we warned that cold weather had hit both production and refinery operations, and we noted that putrid margins and gasoline containment issues across the Midwest were a concern for runs. Over the last seven days, refinery outages from abnormally cold weather have continued to plague the Midwest and appear to be overshadowing production freeze-offs in Appalachia and Canada for now.
Extract from oil products:
US gasoline stocks rose by 0.5 mb w/w to 258 mb for the week ending 1 February. PADD 1 finished the week with a significant w/w build of 2.3 mb, partially offset by a 1.9 mb w/w PADD 3 draw. Colonial Pipeline linespace values remain negative, but values for cycle 10 have firmed by 1.2 cents per gallon over the past four days, aided by the Delaware City refinery fire. Tuesday marked the third straight day of the inter-regional spread between the USGC and USEC widening, but the arbitrage between the regions remains shut for RBOB, CBOB, and conventional 87-octane gasoline. PADD 2 inventory levels increased w/w by 0.4 mb to 62 mb (+ 5.0 mb y/y), with Midcon differentials showing some life after the 0.13 mb/d Detroit refinery went down due to weather-related issues. Differentials in Group Three rose sharply to their highest since November 2018, while differentials in Chicago were less sensitive. After months of perpetually bearish conditions, VGO prices have found support from US sanctions on sour crude from Venezuela increasing the attractiveness of high-sulphur VGO. Extended fog delays in the Houston Ship Channel are raising product storage concerns as USGC exports are reduced. Product containment problems typically arise when ship channel closures last over 72 hours.