U.S. Crude Stocks Fall 3.1 Million Barrels in a Third Straight Draw as Distillates Post a Surprise Build

The U.S. oil market tightened again last week, with crude and gasoline stocks falling harder than expected — but the report had a soft spot, because distillates, the diesel and heating oil the market has been shortest of, unexpectedly went the other way.

U.S. commercial crude oil inventories excluding the Strategic Petroleum Reserve dropped by 3.1 million barrels last week, taking the total to 412.5 million barrels for the week ended Oct. 16, the Energy Information Administration said on Wednesday, Oct. 21 — a third consecutive weekly draw and far larger than the 300,000-barrel decline analysts expected in a Wall Street Journal survey. The precise change was a fall of 3.06 million barrels. Stocks stood about 3% below the five-year average for the time of year, and the draw followed a much larger 8.6-million-barrel fall the week before.

Gasoline drew hard; distillates broke the other way

Gasoline inventories fell by 3 million barrels to 205.3 million barrels, leaving them 5% below the five-year average, against survey expectations that stocks would be unchanged. Gasoline demand rose by 575,000 barrels a day to 9 million barrels a day, a show of late-season strength at the pump.

Distillates were the report's surprise. Distillate fuel stocks increased by 1.7 million barrels to 104.3 million barrels, against expectations of a 1.3-million-barrel draw, even though they remained 9% below the five-year average for the time of year. Distillate demand fell by 591,000 barrels a day to 3.7 million barrels a day. The build also contradicted Tuesday's figures from the American Petroleum Institute, which had shown distillate stocks falling by 2.6 million barrels; the industry group's crude and gasoline estimates, down 4.9 million and 2.0 million barrels, pointed the same way as the official data, only less far. Total commercial petroleum inventories decreased by 8.5 million barrels for the week.

Isaias still held production down

The Energy Information Administration estimated U.S. crude oil production at 13.3 million barrels a day, down by 410,000 barrels a day from the week before. Production continued to be affected by offshore shut-ins due to Hurricane Isaias, which made landfall Oct. 9, although lost Gulf production had been largely restored by Wednesday of last week, according to the Marine Minerals Administration. The storm's shut-ins have now weighed on two consecutive weekly reports, and a recovering output profile argues the supply side of the draw should fade in the weeks ahead — one reason the streak may not extend indefinitely.

Trade flows also tightened the balance. Crude oil imports fell by 291,000 barrels a day to 5.8 million barrels a day, and exports fell by 1.1 million barrels a day to 3.4 million barrels a day. Stocks at Cushing, Oklahoma, the delivery hub for U.S. benchmark futures, increased by 987,000 barrels to 27.6 million barrels, and oil stored in the Strategic Petroleum Reserve fell by 300,000 barrels to 282.7 million barrels.

Refineries ran hot into the autumn

Refineries ran at 93.4% of capacity, down from 93.5% the week before and against a forecast rise of one-tenth of a percentage point, while crude input to refineries rose by 34,000 barrels a day to 16.6 million barrels a day. Gasoline production averaged 9.8 million barrels a day and distillate production rose to 5.2 million barrels a day. Refinery crude runs at that level, in a week when both production and imports fell, had to be fed out of storage — which is precisely what the inventory lines show. Utilization that high in mid-October, when plants usually schedule maintenance, underlines how hard refiners are working to rebuild product stocks while margins stay strong.

What it means with crude near $110

The report lands with oil already priced for scarcity: Brent crude has traded around $110 a barrel and U.S. benchmark crude around $99 this week amid the continuing Strait of Hormuz disruption, and three straight crude draws totaling nearly 15 million barrels say U.S. inventories are not cushioning that shock. The counterweight is distillates: a build against an expected draw, on falling demand, is the first sign in this report that high prices are starting to ration consumption somewhere. Watch next week's report for whether the Gulf production recovery shows up in a smaller draw, whether gasoline demand holds at 9 million barrels a day, and whether distillate stocks build again — a second build would start to change the tightness story.