US crude stocks saw a larger-than-expected build last week as exports fell sharply, and domestic production topped 10.5 million b/d, Energy Information Administration data showed Wednesday.
Crude exports fall 970,000 b/d
Cushing builds fifth straight week
Distillates draw, gasoline builds
Crude stocks rose 3.306 million barrels to 428.638 million barrels the week ending April 6, EIA data showed Wednesday.
Analysts surveyed Monday by S&P Global Platts were looking for a build a of 100,000 barrels. The five-year average for the same period showed an increase of 1.9 million barrels.
This build marked a reversal from the week prior when record-high US crude exports and a drop in imports led to a draw of 4.62 million barrels.
Last week saw imports rebound 752,000 b/d to 8.65 million b/d, while exports plunged 970,000 b/d last week to 1.205 million b/d.
Exports have averaged 1.5 million b/d year to date, double the amount from 2017 during the same period. Imports have averaged 7.8 million b/d so far this year, versus 8.1 million b/d in 2017.
With US crude production climbing further into record-high territory last week, flows have adjusted to encourage a drop in net imports.
Output rose 65,000 b/d to 10.525 million b/d the week ending April 6, a year-on-year increase of 1.29 million b/d.
Despite far greater supply, US inventories have fallen by nearly 105 million barrels since last year.
One reason why has been the shift in crude differentials to encourage exports and discourage imports.
The Brent/WTI spread was trading Wednesday afternoon at $5.33/b, compared with $2.44/b a year ago. That spread had been around parity to $3/b from late 2015 until August 2017 when it began to widen.
A premium for Brent over WTI provides an incentive for US producers to export crude. In a similar vein, Gulf Coast crude prices have strengthened to draw barrels there for export, refining or storage purposes.
Gulf Coasts crude stocks increased 2.632 million barrels last week to 223.468 million barrels, the biggest week-on-week build by region.
The spread for WTI MEH -- representing WTI Midland crude at the Magellan East Houston Terminal -- and WTI Midland has widened since late March.
That spread exceeded $8/b last week, the biggest gap between Permian and Houston prices since S&P Global Platts began assessing WTI MEH in February 2015.
That also reflects the sheer volume of supply coming from the Permian Basin, which threatens to overwhelm the region's pipeline capacity, even though additional infrastructure came online in late 2017.
CUSHING STOCKS BUILD
The premium for WTI crude at Cushing, Oklahoma over Midland has also widened --- topping $6/b last week -- in order to attract barrels.
That differential averaged a premium of $1.72 in March, a premium of 36 cents/b in February and a discount of 91 cents/b in January.
As a result, Cushing inventories have built for five straight weeks by 7.8 million barrels. Stocks at the NYMEX crude delivery point rose 1.129 million barrels last week to 36.022 million barrels.
Growing inventories at Cushing have helped widen the Brent/WTI spread after having narrowed to as little as $3.03/b on March 1, in addition to weakening NYMEX crude's term structure.
NYMEX crude's M1/M2 spread has averaged a 2 cent/b backwardation this month, a 7 cent/b backwardation in March, and a 19 cent/b backwardation in February.
PRODUCT STOCKS MIXED
Crude inventories have increased eight of the last eleven weeks, which is typical for this time of year. However, the size of the builds has been relatively small, allowing stocks to tighten relative to recent levels.
US crude stocks sit at a 2.6% deficit to the five-year average, versus a 9.3% surplus at the end of 2017 and 32.1% surplus a year ago.
Another factor drawing stocks lower has been strong refinery demand. Refinery utilization rose 0.5 percentage point last week to 93.5% of capacity, marking the sixth straight increase.
Crude runs increased by 83,000 b/d to 17.019 million b/d, the first time over 17 million b/d since the week ending January 5.
Even though distillate production was 240,000 b/d higher at 5.256 million b/d, distillate stocks fell 1.044 million barrels to 128.447 million barrels.
Analysts were looking for a draw of 1.2 million barrels. The five-year average showed a build of roughly 90,000 barrels.
Stocks of low and ultra low sulfur diesel on the Atlantic Coast decreased 2.348 million barrels to 35.751 million barrels, a 3.7% surplus to the five-year average.
The NYMEX ULSD crack spread against WTI was 11 cents lower at $21.10/b Wednesday afternoon. The ULSD crack was around $17/b a month ago, and has risen steadily since then.
Gasoline stocks rose 458,000 barrels to 238.935 million barrels the week ending April 6, a 5.1% surplus to five-year average. Analysts were looking for a draw of 2 million barrels.
Stocks on the Atlantic Coast -- delivery point for the NYMEX RBOB contract -- increased by 3.1 million barrels to 60.524 million barrels. The RBOB crack was down 45 cents to $19.76/b in the afternoon.
