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Extract from crude oil:
US crude stocks fell for the first time in three weeks, albeit by a paltry 0.3 mb to 476.5 mb, broadly keeping in line with seasonal trends with the draws in the USGC (-0.8 mb) and the logistically isolated USWC (-1.1 mb). Cushing stocks were flat on the week, although various pipeline and refinery outages due to the floods in the Midwest mean that the hub’s balances remain volatile. Indeed, the 0.35 mb/d Ozark pipeline, which the market feared would be offline for weeks due to an underwater leak, came back online on 29 May, swinging Cushing balances bullish again given that the inbound Pony Express pipeline remains offline. Total crude exports jumped to 3.3 mb/d, while runs started recovering, rising by 0.19 mb/d w/w to 16.8 mb/d, but rising production capped the extent of stockdraws. Amid weak margins and a plethora of unplanned refinery outages, refinery runs will likely continue to underperform over the coming weeks. Despite the gradual ramp up in runs, USGC grades, with the exception of USGC sours, have remained strong as the coastal refineries continue to keep local grades bid to keep them at home. WTI-Houston last closed (29 May) at $7.65 per barrel, while LLS has weakened slightly to $8.65. Also, over the last week, the LLS-Mars spread has widened back out to $3.40, as weak fuel oil markets have weighed on all sour grades (including Canadian heavies) sharply in recent days. Moreover, new sour crude production came online earlier than expected. Last week, Shell announced first oil from its new Appomattox project in the deep-water Gulf of Mexico, six months ahead of schedule and significantly under budget (25% lower than the already-lowered 2015 estimate of 20% savings). With 79% of the project owned by Shell and 21% owned by China’s CNOOC (via a Nexen subsidiary), Appomattox is expected to peak at 0.18 mboe/d within 12 months and is Shell’s largest floating platform in the Gulf. We have revised our offshore GoM production estimate to 0.15 mb/d y/y growth to a record high of 1.88 mb/d, based on the earlier-than-expected commissioning of the project, which will help offset 0.1 mb/d of Thunder Horse production maintenance in February and March, 22 days of work on St Malo this quarter, and any other seasonal maintenance that occurs later this summer.
Extract from oil products:
US gasoline stocks increased by 2.2 mb w/w to 230.9 mb, as inventory levels eclipsed the five-year average by 2.5 mb. Although PADD 2 gasoline inventories increased by 0.5 mb w/w, regional stocks are 4.9 mb lower y/y and 3.0 mb lower than the five-year average. Chicago gasoline prices continue to surge due to regional infrastructure concerns and cycle transition, trading at a sizable premium to the Buckeye Complex, though prices should come off as large refineries including Whiting and Joliet exit turnarounds in the coming days. Group Three sub-octane differentials retreated as large shipments from the USGC arrived and regional flooding concerns faded. On the US East Coast, despite a modest 0.5 mb w/w draw in stocks, Colonial pipeline gasoline linespace remains in negative territory. PADD 3 stocks increased by 1.2 mb w/w, some 6.6 mb above the five-year average and the highest on record. The inventory surplus on the USGC should put pressure on gasoline differential, especially as Asian-origin gasoline shipments into Mexico continue to be heavy. Imports into PADD 5 last week surged to 0.4 mb/d, the highest level in 20 years, and imports are expected to remain elevated, as vessel tracking shows up to six vessels currently heading to the USWC. PADD 5 inventories finished the week up 0.7 mb, pulling even with the five-year average.