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Gulf Coast Crude Oil Inventories: What’s Up? – Analysis

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(EIA) — The national average retail price for regular gasoline has fallen for three consecutive weeks for the first time since December, reading $3.87 per gallon on April 23, seven cents per gallon lower than the 2012 peak of $3.94 per gallon on April 2. While global oil markets remain tight, some easing has occurred in recent weeks.

Evidence of this easing can be seen in decreases in prompt prices for crude oil, reduced backwardation in the Brent futures curve, and accompanying builds in U.S. crude oil inventories, particularly in the important Gulf Coast (PADD 3) market.

The retreat in global crude prices came after the Brent spot price reached its year-to-date peak of $128 per barrel on March 13. Since that time, the Brent spot price fell about $10 per barrel to about $118 per barrel on April 20. This decline has been concurrent with a decrease in the spread between the 1st and 3rd month Brent futures contracts. On March 13, the five-day average 1st to 3rd month backwardation was $1.05 per barrel; by April 20, it had narrowed to $0.51. As would be expected when backwardation narrows, we have seen strong inventory builds in the United States since March 16, over two-thirds of which has occurred in the Gulf Coast market. Gulf Coast crude inventories have increased 18.1 million barrels (520,000 barrels per day [bbl/d]) to reach 183.3 million barrels (Figure 1); a typical build over this period is about 4.3 million barrels (120,000 bbl/d).

Lessening incentive to sell barrels into the prompt market is only part of the story behind rising Gulf Coast inventories. Crude oil imports into the Gulf Coast have also risen significantly over the last month. Imports for the week ending April 20 were 4.79 million bbl/d, 430,000 bbl/d more than the week ending March 16. This increase is likely due largely to an increase in volumes from Saudi Arabia being received on the Gulf Coast. While EIA weekly data does not break out country-level weekly imports by area of entry, U.S.-level data show the four-week average crude imports from Saudi Arabia on April 20 at 1.56 million bbl/d, a 190,000-bbl/d increase compared to the four weeks leading up to March 16. Most of this increase likely went to the Gulf Coast, the destination of almost three quarters of Saudi imports in 2011. Some of that volume may have been destined for Motiva’s expanded Port Arthur, TX refinery. As Motiva (a joint venture between Saudi Aramco and Shell) has prepared for the impending startup of its new 325,000-bbl/d expansion, inventory requirements for the refinery have likely contributed to recent builds.

Shifts in regional crude pricing may have attracted some additional imports to the Gulf Coast. During the first ten trading days of March, Gulf Coast benchmark Louisiana Light Sweet (LLS) fetched a premium of about $1.30 per barrel to Brent; for the remainder of March that differential widened to around $3 per barrel on average. Similarly, a strengthening LLS-Bonny Light differential in late March might have pulled some Nigerian barrels across the Atlantic.

Compounding the impact of those new crude flows, Gulf Coast refinery runs, far from keeping up with rising imports, have inched down counter-seasonally by about 10,000 bbl/d from the week ending March 16 to the week ending April 20. Some Gulf Coast refineries may have conducted late-season maintenance in March and early April, after runs had been relatively high through the typically heavy February maintenance period. Crude units expected to come back on line in late April could temporarily draw down some of the recent Gulf Coast inventory builds. However, as crude shipments resume on the Seaway Pipeline following its reversal that is now expected to be completed in mid-May, line fill and new southbound crude flows could lead to structurally higher inventory levels in PADD 3, even as the reversed pipeline starts reducing stocks in Cushing (PADD 2).

Gasoline and diesel fuel prices fall below year-ago levels

The U.S. average retail price of regular gasoline decreased more than a nickel this week to $3.87 per gallon, almost a penny per gallon lower than last year at this time. This is the first time the U.S. average price has been lower than the same week the previous year since October 2009. All regions across the country were down this week, with the largest drop coming in the Midwest, where prices fell eight cents versus last week. Gulf Coast prices shed five and a half cents on the week to become the lowest in the country at $3.75 per gallon. The East Coast saw a decline of more than four cents on the week. The West Coast average price dropped almost three cents, but remained the most expensive in the country at $4.14 per gallon. Gasoline in the Rocky Mountains saw only a small decline on the week to remain at $3.80 per gallon, marking the first time in 2012 the region has not had the least expensive gasoline in the country on average.

The national average diesel fuel price decreased about four cents to $4.09 per gallon, about a penny per gallon lower than last year at this time, and the first weekly price below the year-ago level since November 2009. All the major regions saw diesel prices drop this week, and the declines were fairly consistent across the regions. The Midwest, Gulf Coast, and West Coast all saw average diesel prices fall between four and five cents. Average prices on the Gulf Coast and in the Rocky Mountains both shed between three and four cents on the week.

U.S. propane inventories post a build

Total inventories of propane grew again last week, adding 1.1 million barrels to end at 47.4 million barrels, nearly 21 million barrels (79 percent) higher than the same week a year ago. The largest gain occurred in the Midwest region, with 0.9 million barrels of new propane stocks. The Gulf Coast added 0.6 million barrels, and the Rocky Mountain/West Coast regional stocks were up slightly. Meanwhile, East Coast inventories dropped by 0.3 million barrels. Propylene non-fuel-use inventories represented 7.8 percent of total propane inventories.

EIA

EIA

The U.S. Energy Information Administration (EIA) collects, analyzes, and disseminates independent and impartial energy information to promote sound policymaking, efficient markets, and public understanding of energy and its interaction with the economy and the environment.

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