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Barclays rules out the possibility of WTI crude exhibiting any weakness in the first quarter of 2014, thanks to the healthy nature of US oil demand and the situation of product inventories.

17 Feb 2014

Commodity Online
Before we delve into the wider aspects of WTI crude oil, let us just get into the real reasons behind the Barclays’ belief that the said variety is poised to maintain a level above $95/bbl in the days to come. In fact, the bank rules out the possibility of WTI exhibiting any weakness in the first quarter of 2014, thanks to the healthy nature of US crude oil demand and the situation of product inventories.

---The bank notes in a report that PADD II (Petroleum Administration for Defense Districts II) refinery runs stand close to 94% of capacity even as the maintenance for refineries in the said district is low for Q1: the figure runs into 30,000 barrels/day. (The PADD II districts are inclusive of Illinois, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Missouri, Nebraska, North Dakota, South Dakota, Ohio, Oklahoma, Tennessee, and Wisconsin.)

---Add to this the positive state of affairs when it comes to pipeline flows away from Cushing on the Keystone XLS (0.3 million barrels/day) and Seaway. Both are running very close to full utilisation ushering in constructive balance in the case of inventories.

---Rail takeaway capacity to either of the coasts—east and west--has been attended to with some improvements to the effect that a diversion in a few more of Bakken cargoes would relieve pressure from inflows for Cushing.

Meanwhile, the Gulf Coast refinery runs, according to US’ EIA weekly data for the last week shows that, it has risen by 200 thousand b/d even as Cushing crude inventories drew by 2.6 mb.

“Combined with these positive indicators of demand, other temporary issues have been at play as well. Infrastructural issues in the Gulf Coast (such as the brief outage on the recently reversed Houston-Houma pipeline, and its impact on the Texas-Louisiana crude corridor) as well as the return of the cold spell (with its positive impact on distillate demand) have also helped support WTI and Gulf Coast grades,” Barclays said in the report.

Now, what would happen if the WTI crude would cross the $101/bbl again? The bank expects that, given the peaking of refinery maintenance in the Gulf Coast in the beginning of March, over the coming weeks, the northward momentum in WTI would slowdown, i.e. if it crosses $101/bbl again.

In fact the runs have already begun to slowdown which may already be at 88% of capacity. Besides, data suggests that a larger-than-usual fleet of tankers which are destined for US would potentially unload their cargoes in March enhancing supply availability. This would in turn weaken the Gulf coast grades and may pull down the lower inland grades like WTI.

“The recent announcement by BP’s Whiting refinery that it was ramping up utilisation at its new coker units over the coming weeks, taking more heavy crude over light, is also a positive for WCS (Western Canadian Select) over WTI,” the Bank said.

(Story image courtesy of krishnan/ freedigitalphotos.net)

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