Monthly Oil Report - Market Summary July 2010

CGES | JULY 2010 | SOURCE: Monthly Oil Report

A 300,000-bpd build in reported onshore stocks of crude oil and products last month left them just 5 mn bbls below last year’s record highs.

Crude oil stocks fell slightly as refinery throughputs revived after spring turnarounds, but at the end of the second quarter they were still 14 mn bbls up on a year earlier.

The additional output from oil refineries added over 450,000 bpd to product inventories, which are rising seasonally. The rate of increase, though, is slower than at this time last year and reported product stocks at the end of last month were 20 mn bbls down on June 2009.

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Crude stocks fall but are still high

The offshore stockpile, however, is gradually declining. Almost 20 mn bbls of crude oil and 8 mn bbls of oil products were reported sold out of floating storage last month, taking the total draw since January to 50 mn bbls.

A narrower prompt premium in the European gasoil market encouraged a draw on distillates stored in tankers off northwest Europe and Iran began to clear its large stockpile of unsold crude oil cargoes, which had built up in the Gulf during April and May.

The Atlantic Basin is now holding most of the surplus crude oil after turnarounds cut demand from Asian refiners in the second quarter, pushing more crude oil west. While higher throughputs in Europe and the US absorbed some of the extra supplies, crude oil stocks in the two regions rose by 140,000 bpd in the second quarter. At the end of last month they were 15 mn bbls up year-on-year and at the highest June level for at least 20 years.

Throughputs rise in the Atlantic Basin

US crude oil inventories are well above the five-year seasonal average, but they are now in  decline after peaking at 365 mn bbls in mid-June. EIA weekly data show a 12-mn-bbl draw over the last three weeks, reflecting both higher refinery runs and falls in crude oil production and imports.

A large overhang persists in Padd 2, where oil stocks are at a record 95 mn bbls, due partly to new storage capacity at the WTI Cushing hub, which was built to accommodate rising imports from Canada.

US refiners hiked throughputs to15.5 mbpd in the first week of this month, the highest run rate since July 2008. Gasoline and diesel margins improved during the second quarter, but they have narrowed again this month as runs have risen. Many small US refineries remain closed — and seem likely to shut permanently; however, Valero is planning to re-start its  Aruba oil refinery, which has been idle since the fourth quarter due to poor margins.

Crude oil runs in Europe rose sharply in June to 11 mbpd, up from under 10.5 mbpd in May. This boosted capacity utilisation to 84% compared with an average 80% over the previous six months.

Despite the large jump in refinery output, product stocks fell by 100,000 bpd, reflecting slightly stronger oil demand. Inland deliveries in France, Germany and Italy last month were 0.4% up on the year — the first positive growth for 15 months.

A large distillate stockpile persists in the Atlantic Basin, capping diesel margins. The hike in crude oil runs boosted diesel output in Europe, and at the same time imports from Russia and the US increased.

Euroilstock reported a small draw in onshore distillate stocks last month, but they were still 5 mn bbls above the high levels of a year earlier. In the US, distillate inventories are at their highest for five months after a 250,000-bpd build during April and May.

More crude moves to Asia

Crude oil is again flooding east as Asian refiners plan higher third quarter runs after spring maintenance. Preliminary July data from consultants Oil Movements put eastbound shipments from the Middle East this month at 12.8 mbpd, the highest since February.

Large volumes of West African crude oil are also being sold to Asia, reflecting Eastern refiners’ growing preference for sweet crudes rather than heavy sour grades. China and India between them have bought 1.5 mbpd of the region’s crude oil for loading this month. Angola has now overtaken Saudi Arabia as China’s largest crude oil supplier.

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