US product stocks stay on tightening trend

New York (Platts)--23Apr2008

Total US product stocks fell another 1.6 million barrels to 642.9 million barrels the week ending April 18, according to data released Wednesday by the Energy Information Administration, and keeping America on a continued tightening trend.

The 1.6 million barrel decline in total US product stocks was tame in comparison with the previous week when inventories fell 7.3 million barrels, but the drop left inventories just 7.423 million barrels above the five-year average but 4.655 million barrels below year-ago levels.

A larger-than-expected draw in both gasoline and distillate stocks made solid contribution to the overall decline in product stocks. Gasoline stocks fell 3.2 million barrels to 212.572 million barrels, 10.23 million barrels above the five-year average and 18.358 million barrels above year-ago levels.

US gasoline stocks have cumulatively declined 23.395 million barrels over the past six weeks as a result of low refiner output and a pick-up in demand. Gross inputs jumped a whopping 742,000 b/d to 15.058 million b/d, yet gasoline output only inched up 26,000 b/d to 8.867 million b/d. Still weak refining margins for gasoline are providing a disincentive to increase output. Implied gasoline demand on a four-week moving average was 9.292 million b/d, or 0.9 percentage points above year-ago levels. given that retail gasoline prices are 63.9 cents/gal above year-ago levels, the current pace of demand is fairly impressive.

Implied demand for middle distillates was 4.281 million b/d on a four-week moving average, or 0.5 percentage points, also impressive since retail diesel prices are $1.292/gal above year-ago levels. Week-over-week, implied demand for middle distillates climbed 292,000 b/d to 4.36 million b/d, and contributed to a larger-than-expected 1.4 million barrel decline in stocks. Within middle distillates, ultra-low sulfur diesel inventories fell 2.9 million barrels to 65.1 million barrels with the majority of the drop occurring on both the Atlantic and Gulf Coasts. Both low sulfur diesel and heating oil stocks increased a total of 1.7 million barrels to reduce the overall decline in distillates.

The continued decline in total US product stocks should continue to put a floor in prices, but the bigger-than-expected jump in run rates ultimately translates into higher output, a bearish consideration, but only if demand growth slows from its current pace. --Linda Rafield, linda_rafield@platts.com