U.S. commercial stocks continue last week’s build
Total hydrocarbon inventories increased by 4.6 MMB last week, driven in particular by a surprise build in gasoline (+2.9 MMB) and in “other products” (+2.3 MMB). As expected, crude stock drew (-1.35 MMB), but the extent of the drop was tempered by another large positive reported number in DOE’s production “adjustment” (+524 MB/D). While it’s difficult to forecast this variable, we expect it to remain in positive territory in the next few weeks as a result of increasing amount of crude moved by rail. Also as anticipated, inventories at Cushing fell 590 MMB to reach a historically very low level of 21.8 MMB. With the first coker having restarted at the Syncrude facility in mid-July, incremental barrels from Canada are likely to reach the Cushing storage hub in the near term. Additionally, very low volumes at Cushing will reduce the efficiency of the pipeline system, which should slow outbound flows. As a result, we anticipate inventories at Cushing to increase by 0.4 MM barrels. This implies that WTI backwardation should weaken. On the production side, the EIA made a 115 MB/D downwards “re-benchmarking” to baseline production, which resulted in the 10.8 MMB/D estimate. However, a 70 MB/D recovery in Prudhoe Bay (Alaska) should bring the rounded volumes back to 10.9 MMB/D for this week.