Extract from crude oil:
US refinery runs are set to increase by just under 1.8 mb/d from March to June as spring refinery maintenance ends. Canadian runs should rise by 0.3 mb/d over the same period, and taken together, the sum of additional crude demand from the two countries amounts to an additional VLCC per day by summer. Last year across the same period, North American refinery demand increased by 1.0 mb/d and exports leapt by just over 0.5 mb/d. Imports answered most of the call then, with an increase of 0.9 mb/d, while production growth of 0.2 mb/d and a stockdraw of around 0.1 mb/d for the three months helped supply that short (SPR releases and unaccounted-for items made up the balance). This year, assuming a token drop in exports of under 0.2 mb/d and production growth of 0.3 mb/d (since most of US growth will be back-loaded this year once the new Permian pipelines start-up and after Gulf of Mexico and Alaska maintenance and a slow start in onshore production), imports and stockdraws must generate around 1.6 mb/d of supply over the period. We have pencilled in an increase of roughly 0.7 mb/d for imports into the US from May onwards, to the same 7.5 mb/d level seen in January, but that assumption is increasingly at risk. In preliminary weekly data, Venezuelan imports are effectively at zero (notwithstanding the latest data showing a small uptick in arrivals, likely to be linked to Chevron’s equity barrels, which the company is allowed to import until 27 July but not allowed to make any payments to PDVSA), a trend we do not see changing in the near term given the political stalemate surrounding Venezuela. Combined imports from Saudi Arabia, Iraq and Kuwait fell below 0.7 mb/d in early April and were down by 0.5 mb/d y/y in March, totalling just over 1 mb/d into the US, a multi-decade low. In January, Saudi Arabia even briefly cut crude supply to its Motiva Port Arthur refinery to zero. The sharp increase in May OSPs from both Saudi Arabia and Iraq suggest supplies from Middle Eastern OPEC countries will remain dear. US refiners will compete against Asia and Europe in the West African, Colombian and Brazilian markets, and returning refinery runs in Asia and heavy upstream maintenance in Europe will make that competition fierce.
Extract from oil products:
US gasoline inventories fell by 7.7 mb w/w to 229.1 mb, taking stocks to 9.8 mb below year-ago levels and 1.9 mb below the five-year average. PADD 5 stocks fell by 1.9 mb w/w, finishing the week some 1.9 mb lower y/y. Refinery problems in California, notably the unplanned shutdown of Valero’s Benicia refinery, have pushed San Francisco gasoline prices to the highest since July 2015. Since the 0.15 mb/d refinery went down on 25 March, CARBOB prices in San Francisco increase by 21% to $2.59 per gallon, while the differential to NYMEX exploded, increasing by 76% over that timeframe. To make matters worse, refinery outages in Los Angeles are causing southern California prices to skyrocket to close to a four-year high, as prices eclipse $2.56 per gallon. The southern California gasoline market typically trades at a premium to the northern California market. However, within two days of the incident at Benicia, the San Francisco gasoline market (northern California) traded at a premium for the first time since January, hovering around 3.5 c/gal. Inventories in PADD 3 fell by 0.7 mb w/w to 80.7 mb, as gasoline prices in the USGC have been gaining strength since late last week, with 87 conventional gasoline hitting a six-month high. Despite the significant draws in PADD 1 (-3.3 mb w/w), strength in the USGC has caused the spread between the USGC and USEC to fall well below the 5.49 c/gal cost of shipping. Line 1 trading space along the Colonial pipeline has been in negative territory since 16 January, as demand to transport gasoline has dried up.