US refiners set to tackle record crude stocks

OREANDA-NEWS. Unusually strong product demand and the approach of the peak US driving season willwhittle away at record crude inventories, but low-priced imports and strong domestic production may keep stocks high for months.

US refiners are exiting turnaround work amid late March gasoline demand rates not seen in eight years, according to the Energy Information Administration.

US finished gasoline supplied — a measurement of implied demand — reached 9.4mn b/d in the week ending 27 March. That was 6pc higher than the five-year average and more than 12pc above average production for the 24-year history of EIA data. US gasoline inventories saw a 4.3mn draw on for the week, though volumes remain 6.3pc higher than the same week of 2014.

Signs of positive domestic gasoline demand have become rare for refiners in the world's largest market for the fuel. Federal biofuel mandates, an increasingly efficient auto fleet and changing driving habits have all pared away at gasoline demand projections for several years. The EIA estimates gasoline consumption will average 9mn b/d this year but fall by 60,000 b/d next year. This has led US refiners to put more focus on modifications in increase production of globally-demanded diesel, rather than boosting gasoline production.

Both midcontinent and US Gulf coast refiners reached record crude throughput levels last yearwithout a strong domestic pull for fuel. US Gulf coast crude throughputs of 8.3mn b/d and midcontinent refiner throughputs of 3.4mn b/d for the week ending 27 March were 950,000 b/d below maximum rates set over the summer period in 2014, according to EIA data. Consultancy Wood Mackenzie estimates US refiners could increase total throughputs by 1.7mn b/d this summer.

Such conditions make it unlikely US crude storage volumes will fill to capacity this spring. But competitive pricing of imported crudes and the sheer size of US domestic crude production will make record crude inventories tough to reduce.

US commercial crude stocks have climbed to 471.4mn bl, the largest level in at least 80 years, according to the EIA. Tanks continue to fill even amid tough prices. Domestic crude production has held above 9mn b/d since November of 2014.

That production volume remains below the combined refining capacity of both regions, even setting aside the 2mn b/d of coking capacity in the US midcontinent and US Gulf coast poorly suited to process lighter US production. But US refiners continue to import more than 7mn b/d of crude. Nearly a third of deliveries in January, the most recent period available, were light crudes.