U.S. crude oil inventories plunged by more than 14.5 million barrels in the week ending on Sept. 2, the largest weekly drop since 1999.
The reasons for the drawdown are not hard to find with a modest acceleration in refinery processing rates and a sharp slowdown in crude imports.
Crude imports fell from an average of 8.9 million barrels per day in the week ending Aug. 26 to just 7.1 million bpd in the week ending Sept. 2, according to the U.S. Energy Information Administration.
Crude imports fell by a total of almost 13 million barrels compared with the previous week, accounting for most of the reported decline in inventories.
Crude imports have been trending higher since early 2015 as domestic production has fallen and refiners have turned to foreign crudes to help meet strong demand for gasoline and diesel.
Crude imports of 8.9 million bpd in the week ending Aug. 26 were the highest for nearly four years and imports have been above 8.4 million bpd in six out of the last 12 weeks (http://tmsnrt.rs/2ceIe93).
By contrast the 7.1 million bpd of imports in the week ending Sept. 2 were the lowest for 10 months, according to EIA data.
Changes in the weekly volume of imports are the single most important source of week to week volatility in the stock numbers so the import slowdown produced a predictably sharp drop in inventories.
Crude oil imports exhibit significant week to week volatility but most of the changes are "noise" related to the timing of tanker arrivals and customs clearances.
Crude importers must notify the Energy Information Administration about the amount of oil imported before 7am Eastern Standard Time on Friday each week.
But crude is reported only once it has cleared U.S. customs, a paperwork transaction rather than a physical movement. Until then it is considered "in transit" and remains outside the reporting framework.
While crude from Canada arrives by pipeline most other crude arrives by tanker, much of it in very large crude carriers carrying around 2 million barrels at a time.
In general, crude cargoes are cleared in a single entry with U.S. Customs, which creates significant "lumpiness" in the data.
Weekly import data is therefore very sensitive to the timing of tanker arrivals and customs clearances. In many cases a sharp rise or fall in imports is reversed the following week.
Ship arrivals and customs clearances can be impacted by bad weather and logistical problems as well as ordinary bunching, which seems to have been what occurred during the week ending Sept. 2.
Crude imports to both the U.S. East Coast (Maine to Florida) and the Gulf Coast (Texas to Alabama) were both sharply lower in the week ending Sept. 2.
East Coast imports fell to less than 600,000 bpd from over 1.2 million bpd the week before. Gulf Coast imports dropped to less than 2.5 million bpd, from 3.2 million bpd the week before, and the lowest level on record.
Imports to other areas also fell but by much less. Pipeline imports into the Midwest fell marginally but remained within the recent range. Seaborne imports to the West Coast also fell but remained within range.
The fact that the slowdown in imports was concentrated on the eastern seaboard points to weather and other local logistical problems as the most likely cause.
One likely explanation is tropical storm Hermine, which moved through the Gulf of Mexico and started to move up the East Coast during the week ending Sep. 2.
The National Hurricane Center started issuing warnings about Hermine on Aug. 28 ("Hermine Graphics Archive", NHC, accessed Sept. 9).
In most cases tankers will respond to the warning of a hurricane by attempting to divert away from it, remaining at sea and delaying arrival, which is consistent with the slowdown in imports reported last week ("Marine Safety", NHC, accessed Sep 9).
The confluence of weather warnings on both the Gulf and East Coasts, a small slowdown in imports to the West Coast and an even more modest slowdown into the Midwest produced a very large drop in nationwide imports.
The result was an unusually sharp drop in both imports and inventories but it seems to have been more a statistical effect than a sign of a fundamental shift.
In the past, sudden slowdowns in imports have often been followed by a sharp rebound the following week as delayed tankers arrive and discharge.
If that pattern is repeated, both imports and crude stocks are likely to rise again over the next couple of weeks.
(By John Kemp)