First U.S. crude stock build in six weeks forecast, even as refiners run hard

(Reuters) - After five straight weeks of falls in U.S. crude stockpiles confounding expectations, oil market analysts calling for a rise in storage this week are banking on refineries finally cutting output in the way they typically do at this time of year.

Crude oil storage tanks are seen from above at the Cushing oil hub, in Cushing, Oklahoma, March 24, 2016. REUTERS/Nick Oxford/File Photo

Crude inventories rose by 2.7 million barrels in the week to Oct. 7, the American Petroleum Institute, a trade group reported on Wednesday, suggesting that official U.S. government data due on Thursday could show the first crude stockpile rise since the end of August. [API/S]

The government-run Energy Information Administration (EIA) had stumped the market over the past five weeks by recording a 26-million barrel loss in crude at a time of when builds are more likely.

Analysts attribute that in part to U.S. refiners processing more fuel than they have done on average over the past five years as pipeline outages and some unexpected glitches at refineries kept profit margins up.

Typically, at this time of year, refining margins fall as the driving season ends. Slackening demand means refiners usually take a breather and do maintenance before winter demand for heating oil kicks in.

Refining margins for gasoline, the premier U.S. fuel product, was at $11.30 a barrel on Tuesday, little changed from levels at this time last year but well above the levels in 2014 as international oil prices crashed.

Refinery output, in contrast, averaged 18.4 million barrels per day this year, versus the five-year average of 17.8 million barrels.

That, and lower-than-expected crude imports, are among factors that have tripped up the market’s recent forecasts of weekly EIA data, analysts say.

For the latest week ended Oct. 7, analysts’ expectations are that crude stockpiles had risen by 300,000 barrels. Whether they are right this time in calling for a build -- or wrong again -- refiner activity will be the key. [EIA/S]

“It’s all about refining margins, especially for the biggest integrated oil companies which have been getting killed on the E&P (exploration and production) side of their business,” said Kyle Cooper, consultant at Houston-based ION Energy.

“Refined product prices are still higher in relation to crude prices, giving refiners a lot of incentive to maintain runs as high as possible. It remains one of the few profit bright spots for them and they’re getting as much out of it as they can,” Cooper said.

Refinery runs dropped in four consecutive weeks to Sept. 30 but remain at 88.3 percent of capacity, EIA data showed, which is higher than in 2015.

A Reuters poll of analysts forecast that runs likely fell another percentage point in week ended Oct. 7.

“We’re certainly going through the seasonal trend where more and more refinery units go into maintenance, but margins are still unusually strong because of pipeline issues and unexpected refinery outages that stalled gasoline supplies in a big way,” said Jim Ritterbusch of Chicago-based oil markets consultancy Ritterbusch & Associates.

The biggest leak in nearly two decades on the main gasoline line of Colonial Pipeline Co, the largest U.S. gasoline transporter, halted supplies of the fuel last month, causing both gasoline prices and refining margins to spike.

A gasoline glut of some 25 million barrels in July has dwindled to just about 3.5 million barrels now from record summer consumption and hefty exports to Latin American countries hit by refinery problems, data showed. Higher jet fuel production has also drawn down crude inventories.

“None of these factors would have been enough to clear the gasoline glut on its own. But in combination these factors have proved enough to draw down excess gasoline and leave the market looking more balanced,” Reuters analyst John Kemp said in a commentary.

While the average crude build forecast by analysts for last week was just 300,000 barrels, Ritterbusch said he was expecting a rise as high as 5 million to 6 million.

“That’s based on the seasonalities that we should be getting. But again, there’s always the possibility of another surprise draw.”

Reporting by Barani Krishnan; Editing by Simon Webb and Lisa Shumaker