The potential return of Libyan oil production in the short term as discussed above will also have a more direct impact on the Brent side of the spread.
This week’s EIA oil fundamental snapshot was biased to the bearish side with total crude oil and refined products inventories increasing as crude oil stocks increased in the United States and in PADD 3 due to the re-opening of the Houston Ship Channel. With another above normal build in crude oil stocks in this week’s report the main focus continues to be the big shift that is well underway in crude oil supply between PADD 2/Cushing and PADD 3 (Gulf Region).
The shift of crude oil from PADD 2 and Cushing showing up in the Gulf region will result in inventories continuing to build further as the refining sector progresses into the maintenance season. The maintenance season has not impacted the Gulf yet as refinery run rates in PADD 3 are once again above the 90% utilization level. The movement of crude oil to the Gulf is certainly beginning to impact all of the pricing interrelationships for both U.S. and international crude oil grades as well as refined product markets. For example the LLS/WTI spread is now trading below the $3/bbl. level making spot movement of light Bakken crude oil by rail uneconomical.
PADD 3 crude oil stocks surged by 3 million barrels (or almost three times as much as the decline from the HSC closure during the previous week) as crude oil imports into PADD 3 increased strongly. PADD 3 crude oil stocks are now showing a surplus of 15.2 million barrels vs. last year with an 18.7 million barrel surplus versus the five-year average. PADD 3 crude oil stocks set yet another new record high as shown in the following chart. The big shift continues.