Extract from crude oil:
Crude stocks fell by 4.8 mb, compared to the five-year average draw of 0.4 mb, even as imports bounced back to 6.9 mb/d and exports were steady at just above 3 mb/d. Refinery runs eased back below 17.4 mb/d, but with US production struggling to grow rapidly, domestic inventories have been kept in check. Indeed, over the past 12 weeks, notwithstanding the occasional inventory builds, US crude stocks have declined by nearly 63 mb, at a rate of 0.75 mb/d.
The substantial 7.45 mb draw in crude at Cushing during August helped narrow the WTI-Brent spread significantly in recent weeks, to below -$4 per barrel, outperforming our expectations. Several factors will continue to support Oct-19 WTI-Brent, the current front-month spread. WTI-Midland is trading above WTI-Cushing again, partially due to the start-up of the EPIC and Cactus II pipelines, shutting arbs from the Permian on West Texas pipelines and reducing flows into the hub. Additionally, Plains All American announced 12-day maintenance on the Basin pipeline between Colorado City and Wichita Falls during October, which will also curtail throughput to Cushing, as we noted in Data review: US Department of Energy, 14 August 2019. But while WTI rose significantly versus Brent, WTI-Houston rose only modestly, leaving WTI-Houston at around a $2.50 per barrel discount to Brent, a spread that keeps US exports attractive to the rest of the world but a level that could have theoretically prohibited flows from inland crude markets (including from Cushing to the USGC). However, the closed arbs to the USGC ultimately compelled pipeline operators to reduce walk-up tariffs to keep throughputs on their systems full. In the Permian, EPIC has lowered its tariff to $1.35 per barrel for September, while at Cushing, Marketlink reduced the tariff to $2.25 for light barrels from September onwards. So despite a lower WTI-Houston differential, Cushing stocks continue to draw and will likely fall in October by 2.6 mb to 36.9 mb. Given reduced spot tariffs on several key pipelines, WTI-Brent is likely to remain narrow even with WTI-Houston historically low, which in turn will keep US exports attractive in foreign markets. In short, a strong WTI-Brent differential is being compensated for by weak WTI-Houston pricing relative to Brent to keep exports flowing.
Extract from oil products:
US gasoline stocks fell by 2.4 mb/d w/w to 229.6 mb as a 3.1 mb drop in PADD 3 inventories offset a 1 mb build on the USEC, which took stocks there to 65 mb, some 3.3 mb higher than the five-year average. Strong exports from PADD 3 amid Latin American refinery maintenance helped keep USGC stocks at a y/y deficit. At 77.2 mb, regional stocks in PADD 3 last week were 3.5 mb lower y/y despite still-strong refinery runs of over 9.1 mb/d.