Extract from crude oil:
Cushing stocks have drawn by 2.2 mb so far in April, versus consensus expectations of a build of 1.5 mb and our updated forecast of a 0.3 mb rise (initial forecast build of 1.3 mb). While the disposition has remained constructive for Midwest crude, there is still reason to suspect a brief return to stockbuilds, even before month-end. For one, Permian output is likely rising, with frac spreads increasing by 17 since the beginning of March, hitting 165, the highest since November 2018. The trade-month average for April WTI-Midland weakened from $0.07 per barrel in March to -$0.22 per barrel with much of the weakness towards the end of the cycle. This move and further expected weakness will arrest the decline in Basin pipeline flows in the hub. Since the start of the month, WTI-Midland differentials to Cushing have widened significantly, from $0.60 per barrel under CME WTI to $7.50 per barrel under CME WTI at one-point last week amid rising production and pipeline delay rumours. The 0.4 mb/d EPIC NGL pipeline, which is set to be converted to crude for an interim period, is one of the most difficult to report on because of the limited amount of public data. There continues to be uncertainty around the in-service date for its interim crude service, which will later dovetail into the larger 0.9 mb/d crude line. Rumours suggest that the NGL line will now commence throughput later in Q3 19, rather than an early Q3 19 start as originally anticipated, such that prompt weakness in the WTI-Midland curve could remain longer (see E-mail alert: Midland differentials collapse as arbitrage to Cushing opens, 12 April 2019). Planned and unplanned refinery outages have also added to Midland’s woes. Regardless of what combination of factors have triggered the correction in WTI-Midland prices, arbitrage into Cushing is firmly open on the Basin and Centurion pipes for the next few trade months, and nominations due this week will likely trigger increased flows to Cushing once more.
Extract from oil products:
US gasoline inventories fell by 1.2 mb w/w to 228 mb, some 8.0 mb lower y/y and 2.3 mb below the five-year average. Stocks in PADD 1 fell by 1.1 mb w/w to 2.2 mb below the five-year average, while PADD 3 stocks increased by 1.4 mb w/w, leaving inventories 3.2 mb above the five-year average. Colonial Pipeline line space trading has seen an uptick in activity as valuations have increased by 1.0 c/ gal w/w, though remains in negative territory since 16 January. Despite negative valuations for line 1, the arbitrage from the USGC to USEC has recently become workable on paper for RBOB, CBOB, and conventional 87. Inventories in PADD 2 fell by 0.4 mb w/w. Arbitrage conditions continue to improve as Chicago’s Buckeye Complex premium to the USGC has increased to more than 13 c/gal. PADD 5 inventories fell by 1.9 mb w/w, some 2.2 mb lower y/y. Gasoline prices on the USWC continued to drift lower, despite flaring at Chevron’s 0.28 mb/d refinery in El Segundo. CARBOB differentials in Los Angeles and San Francisco have fallen by 16 c/gal and 18 c/gal in light trading from their recent highs set on 11 April as imports have begun to arrive. San Francisco regular CARBOB has traded at a 2 c/gal discount to Los Angeles for the past three sessions after trading at a 5 c/gal premium on 9 April.