During the recent Tour de France bicycle race, fans saw that the steep descents were as challenging and interesting as the steep climbs. In oil markets, analysts have recently observed a steep decline in U.S. commercial crude oil inventories with close attention and interest.
Crude oil inventories, which had been above their five-year range all but one week since March 2012, fell by a record 27 million barrels over the past three weeks and are back within the five-year range (Figure 1). Despite the record draw over the past three weeks, average 2013 inventories through July 12 remain 6 percent above the same period last year and 11 percent above the five-year average. Robust total U.S. inventories have been largely the result of high inventories in the Midwest (PADD 2) which, despite recent declines, remains 22 percent above the 5-year average for the week ending July 12. Inventories declined for three reasons: (1) an increase in U.S. refinery runs; (2) a decrease in crude oil imports; and (3) an increase in backwardation (a reduction in price for future months) on the West Texas Intermediate (WTI) futures price curve that has encouraged reducing inventories rather than buying crude at current market prices.
The significant inventory draw was caused primarily by an increase in already high refinery demand for crude oil, including additional demand resulting from the restart of a 250,000 barrels per day (bbl/d) crude distillation unit at BP's Whiting, Indiana, refinery. Total U.S. refinery utilization increased 2.6 percentage points between June 21 and July 12, reaching 92.8 percent. Much of this increase is attributable to PADD 2, where utilization went from 87.9 percent to 94.6 percent over the same time, an increase of 6.7 percentage points. PADD 3 (Gulf Coast) utilization also rose over this period; at 95.4 percent for the week ending July 12, it was 2.3 percentage points above its June 21 level. Crude runs on the Gulf Coast have been buoyed by strong distillate margins. The 533,000 bbl/d increase in U.S. refinery net crude oil inputs pushed refinery runs to their highest level since 2005.
On the supply side, lower crude oil imports have increased the draw on stocks to meet demand from increased refinery runs. Crude oil imports into the United States for the weeks ending June 28 through July 12 averaged 649,000 bbl/d less than the three-week period ending June 21. Imports into the Gulf Coast and East Coast averaged 671,000 bbl/d and 219,000 bbl/d less, respectively, compared to the previous three-week period. Declines were led by lower imports from Saudi Arabia and Venezuela, which each dropped by about 25 percent over the three-week period ending July 12 compared to the prior three-week period, accounting for a 630,000-bbl/d decline. While year-to-date through July 12 U.S. imports of Canadian crude oil were 5 percent above 2012 levels, flooding in Alberta along with processing facility outages, have limited imports from Canada since June. As of July 12, Canadian imports are down 10 percent (278,000 bbl/d) from their 2013 high in mid-April. Lower Canadian supplies have a significant impact on PADD 2 inventory levels, since most Canadian crude comes to the United States via pipeline into the Midwest.