U.S. Crude Stockpiles Slump as Production Drops

Graphic for News Item: U.S. Crude Stockpiles Slump as Production Drops
U.S. crude oil inventories slumped last week as production fell sharply after Hurricane Nate hit the Gulf of Mexico, while refining rates were down sharply as autumn maintenance season ramped up, the Energy Information Administration said on Wednesday.

Despite the falloff in refining runs, gasoline and distillate stocks rose, surprising traders, causing oil prices to dip.

“The recent hurricanes - Harvey, Irma, and Nate - continue to have an outsized impact on the U.S. energy sector,” said John Kilduff, partner at energy hedge fund Again Capital LLC in New York.

“Gulf Coast refining remains moribund - taking quite a while to rebound - and the steep drop in domestic, lower 48 oil production, is a lasting effect of the shut-ins from Nate.”

Crude inventories fell 5.7 million barrels in the week to Oct. 13, the EIA data showed, compared with analysts’ expectations in a Reuters poll for a decrease of 4.2 million barrels.

U.S. crude production dropped to 8.4 million barrels per day, down over a 1 million bpd from a week earlier, largely due to Hurricane Nate. That storm that hit the Gulf of Mexico early in October forced the closure of as much as 95 percent, or about 1.6 million bpd, of offshore production.

Distillate stockpiles, which include diesel and heating oil, rose 528,000 barrels, versus expectations for a 1.5 million-barrel drop, the EIA data showed.

Gasoline stocks increased by 908,000 barrels, much more than forecasts for a 256,000-barrel gain.

“This is yet another sign of lower demand during the shoulder months, which together with U.S. crude stocks remaining above the five-year average, will render a bearish signal to the market,” said Abhishek Kumar, senior energy analyst at Interfax Energy’s Global Gas Analytics in London.

Product stocks grew even as refinery crude runs decreased by 819,000 bpd, EIA data showed. Refinery utilization rates fell by 4.7 percentage points, dropping the overall capacity utilization rate to 84.5 percent, the lowest seasonal rate since 2011.

Some of the decline in refining activity was also due to Nate, though notable drops in refining runs were seen on the West Coast and Midwest, where the hurricane had no effect.

Gulf Coast refining utilization currently sits at 83.7 percent; it had been in the mid-90s prior to Hurricane Harvey that hit in late August, but has since remained at lower levels.

U.S. crude futures were up 6 cents to $51.94 as of 11:02 a.m. EDT (1502 GMT) a barrel, falling from the day’s high of $52.33. Brent was up 10 cents to $57.98 a barrel, off earlier highs as well.