Extract from crude oil:
Cash WTI roared into backwardation this week as Cushing builds disappointed amid quality issues and with pump-over congestion impacting individual tank farms at delivery. Tighter specifications at Cushing and midstream enforcement of quality segregation appear to have left the delivery point short of on-specification WTI material, while complications surrounding pump-over capability among specific tanks complicated expiry further. Over the past week, further supportive news for WTI emerged. Valero Memphis delayed a portion of its turnaround by over a year, the Seaway Twin pipeline increased throughput after a new 0.1 mb/d commitment was completed earlier in the quarter, Wood River announced its restart for this week, Hollyfrontier addressed its pipe-rack issue, and the 0.8 mb/d Enbridge Line 4 pipeline into the Midwest had a brief technical issue. Furthermore, the NOAA announced that it expects over 200 million Americans to be impacted by record flooding within the central corridors of North America this year, thus alerting the market to significant risks to Canadian and Bakken production if the spring thaw disrupts rail, trucking or field operations, which could result in reduced throughputs from Pony Express, Keystone, Spearhead and Flanagan South into Cushing, although we do not see a high likelihood of a prolonged impact. Canadian heavy is already trading inside -$10 per barrel versus WTI-CMA, as significant maintenance at Christina Lake and Jackfish boosts heavy pricing, while the Alberta-mandated production cuts, albeit partially relieved, continue to impact overall Canadian production. To the south, Permian crude flows remain volatile, as more West Texas Light is redirected from Cushing to new takeaway into the USGC, and as production growth continues to remain in check. Frack spread counts in the Permian have risen to 155, up from the 136 low in January, but still down from the 178 seen in October 2018. We still see Permian y/y growth coming in at 0.7 mb/d in 2019, with much of that going to the export markets via Corpus Christi and Houston.
Extract from oil products:
US gasoline inventories fell by 2.9 mb w/w to 238.6 mb, led by a 2.2 mb w/w draw in PADD 3. Delays out of the Houston Ship Channel following fires at a tank farm last week and a series of refinery upsets are supporting the USGC gasoline market. Prompt 9.0 RVP regular CBOB has been driving the strength, with gains of more than 1.1 c/gal over the last three sessions. Strength in the USGC has reduced demand to ship gasoline along the Colonial Pipeline as the arbitrage remains closed. A wide bid/offer spread has muted trading activity for Line 1 space, as valuations remain at lowest levels since 15 February. PADD 2 inventories fell by 0.9 mb w/w (-3.4 mb y/y), despite gasoline prices trending lower across the Midcon.