CRUDE OIL INVENTORY/’000 bbls (Week Ended 1/2/15)

Current: 382,393
Actual Build/(Withdrawal): (3,062)
Economist Average Estimate: 911
Previous: 385,455

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CIBC World Markets

Crude Draw Overshadowed by Massive Product Build

Today’s EIA oil inventory report was headlined by a massively bearish 8 mb increase in gasoline and 11.2 mb surge in distillate stocks, which over shadowed the 3 mb draw in US crude inventories. Crude stocks in PADD 2 increased by a sharp 2.9 mb, which was fueled by a significant increase in imports from Canada. Receipts from the North surged by 535 kbd WoW and totaled 3.3 mbd, marking another new high. While pipeline takeaway capacity from Canada hasn’t increased, the Flanagan South and Seaway Twin pipeline are now operational and will help to move otherwise stranded Canadian barrels from the Midcontinent to the Gulf area. Marketlink and the Seaway Twin pipeline are now moving a cumulative 650 kbd of Canadian crude from Cushing to the Gulf. This will help to ease the concentration problem and help to diversify Canadian barrels from Midwest refiners (historically, a large portion of Canadian crude exports typically went to just a small handful of US refiners), See WCS: Further Widening Not Likely, July 17th, 2014 for more.

The total US crude draw was led by the Gulf, where inventories fell by 4 mb. Imports plunged by 438 kbd on the week and the total notional barrels imported to the Gulf fell to the lowest level in over 20 years. Imports from Saudi dropped by 202 kbd last week to lows not seen since 2010 as the Kingdom continues to prioritize market share in Asia over the US. Imports from Mexico have been choppy due to erratic weather, leading to a WoW decrease of almost 400 kbd. Regional refinery runs have remained strong with Gulf utilization running at a clip just under 96% (which compares to market averages closer to 91%).

Both product cracks were weaker following the bearish storage report. ‘Demand’ (product supplied) was materially weaker across the complex last week with gasoline softer by over 800 kbd and distillate down almost 1.4 mbd. The East Coast was a big driver in the aggregate stock build in both gasoline (4.7 mb) and distillate (2.9 mb), but the one bullish take is that distillate stocks in the Central Atlantic (which includes New York Harbor) were virtually unchanged on the week and remain extremely low on both an outright and on a days of forward demand cover basis.

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