US crude stocks to decline

According to Wood Mackenzie’s latest outlook, US crude oil stocks have grown over 30 million bbls/month this year, leading to a series of record highs and most recently reaching 471 million bbls of crude on March 27. The outlook estimates that the US has approximately 200 million bbls of unused crude storage capacity. Afolabi Ogunnaike, Senior Research Analyst for Americas and Oil Product Markets at Wood Mackenzie said, “Wood Mackenzie does not expect the US to run out of crude storage. On the contrary, we anticipate that the uptick in refinery crude runs and exports will exceed the growth in supply eventually leading to stock withdrawals.”

The company has forecast that refinery crude runs will rise significantly in April as refineries exit seasonal maintenance and gear up for the summer season. Ogunnaike said, “refinery crude runs could increase over 1.7 million bpd from the spring lows to the summer high and set new records. The ramp up in crude runs is expected to be the largest factor impacting the trajectory of US crude stocks. As US refineries increase their throughputs, we anticipate they will also increase their imports of crude oil from the March 2015 levels.”

Low crude oil prices have contributed to slower growth of US crude oil supply. Wood Mackenzie expects this growth will be counterbalanced by increasing exports of crude oil and minimally processed condensate. These exports are supported by a wider Brent-WTI differential.

Storage

Although the US has ample crude storage capacity available, Cushing is now approximately 80% full, according to Wood Mackenzie: “The April 2015 start up of the 250 000 bpd Cactus pipeline from the Permian into the Gulf Coast is expected to reduce pressure on Cushing. This pipeline bypasses Cushing, and moves light crude to the Gulf Coast refining and storage hub. Rising Cushing crude stocks could also reach the Gulf Coast by accessing the 1.55 million bpd pipelines connecting the two regions,” Ogunnaike added.

US crude storage capacity has grown significantly as tight oil supply and takeaway capacity increased, Ogunnaike noted, “as storage hubs like Cushing approach capacity, crude may need to be transported further to access available storage sites. These sites could charge higher fees and may be more costly to reach. This logistics factor has a widening impact of Brent-WTI. We anticipate the narrowing impact of the rising crude runs, however, outweighs some of these challenges and compresses the Brent-WTI differential this summer.”

Wood Mackenzie’s outlook has reiterated that despite the rise in crude oil stocks this year, US storage is not close to reaching capacity. Ogunnaike concluded, “record high crude stocks will be pulled down this summer as US refinery crude runs rise over 1.5 million bpd.”

Edited from press release by Claira Lloyd

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