Blog October 19, 2015

According to Genscape, Crude storage levels in PADD 3 reached a record high for the week ending October 2, 2015, topping 100mn bbls stored across four locations in the West Texas Permian Basin, Houston, Texas, Beaumont-Nederland, Texas, Corpus Christi, Texas, and St. James, Louisiana. Genscape began monitoring comprehensive storage totals for the eight locations in July 2014.

Despite record-high storage levels, total monitored capacity utilization remains below 60 percent. The previous highest storage level was reached in May 2015 shortly following the record-high stock level attained at Cushing, Oklahoma, in April 2015.

How are PADD 3 stocks filling amid falling U.S. production and rig counts?

Genscape-monitored storage inventories in PADD 2, Canada, and PADD 3Some of the PADD 3 storage increase can be attributed to a southward migration of barrels from PADD 2 and, to a lesser extent, Canada. Between weeks ending August 14 and October 2, 2015, Genscape-monitored inventories in PADD 2 and Canada declined near 12mn bbls, while over the same time span, Genscape-monitored PADD 3 inventories increased about 11mn bbls.

Waterborne imports into PADD 3 can be a large contributor to storage levels in the region. But, during the eight weeks between August 13 and October 1, 2015, waterborne imports into PADD 3 declined about 4.5mn bbls, revealing that most of the PADD 3 stock increase was sourced from within North America.

Some of the decline in Canadian inventories during the time period can be attributed to lower production output. Unplanned outages at the Syncrude and Nexen Alberta upgrading facilities in addition to the planned outage at the Suncor facility in Edmonton were expected to reduce production by approximately 115,000 bpd in September, according to Genscape. However, Genscape still expects oil sand production to remain a pillar of growth through the next five years, with an expected 1.21mn bpd increase from 2015 to 2019.

Much of the storage increase between weeks ending August 14 and October 2, 2015 was due to higher U.S. Gulf Coast incoming pipeline flows. On average, 70 percent of monitored incoming pipeline capacity into the Texas Gulf Coast was utilized over this time period. Pipeline utilization has risen to over 60 percent since the week ending July 31, 2015 after hovering in the 50 to 60 percent range earlier in 2015.

Gulf Coast Pipeline Capacity Utilization and Texas Gulf Coast Storage

While more oil was piped in August and September 2015, less was leaving PADD 3 via waterborne shipments. On average 1.8mn bbls of crude per week departed PADD 3 locations via waterborne movements en route to non-PADD 3 locations in the eight weeks between August 14 and October 2, 2015. In the eight weeks prior, an average of 2.2mn bbls per week left PADD 3. The majority of shipments were destined for the Canadian East Coast.

The U.S. refinery maintenance season is also gearing up, which will create local demand changes in already oversupplied crude markets. Planned maintenance is expected to have the largest effect on the U.S. Midcontinent despite the much larger refining capacity on the Gulf Coast. As discussed in a Genscape blog published August 27, 2015, additional displaced refinery maintenance barrels may head south where storage capacity is more plentiful than in the Midcontinent.

Many Gulf Coast refineries, totaling nearly 1mn bpd of refining capacity, recently completed major overhauls in early 2015, reducing the amount of maintenance needed this fall. Fall and winter refinery maintenance anticipated in the Gulf Coast is limited to a few isolated crude distillation unit and fluid catalytic cracking unit turnarounds. However, Valero Energy planned to add CDU capacity in Corpus Christi and Houston, helping to counter balance capacity down for maintenance.

In contrast, Midcontinent crude demand is expected to decrease significantly in November 2015, as refiners perform planned maintenance. Much of the planned maintenance is anticipated for refineries connected to Cushing including the Coffeyville Resources' Coffeyville, Oklahoma, refinery, Phillips 66' Ponca City, Oklahoma, and Wood River, Illinois, refineries and HollyFrontier's Tulsa, Oklahoma, refinery. These refineries have direct pipeline connections to Cushing totaling 567,000 bpd.

Should the crude that would normally be consumed by these units in maintenance pool in Cushing rather than be pushed south, rising Cushing storage levels will pressure WTI prices downward.

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