The Navarik PADD 5 Net Import Index, which measures qualified future import and export movements of refined products into the US West Coast, has held stubborn at balance for distillates since early August (apart from brief small jumps). Jet & kerosene has likewise held steady at balance for much of last week. Both displayed no qualifying import or exports much longer than typical. What can we make of this?
The first observation is to note that the causes for each are likely unique. Consider the year-over-year changes in net export and net import volumes for distillates and jet & kerosene, respectively (figures 1 and 2, below). Note that although distillates exports have recently been well above their 2016 levels, the drop observed in the Index is due to these volumes falling well below. The slow-down in distillates exports from PADD 3 noted in recent weeks appears to also have carried over to PADD 5, and is likely an import-country demand side dip which should tentatively be linked to the ongoing diesel emissions controversy. Jet & kerosene, however, appear to be a much more organic seasonal slow-down. The overall trend matches better year-over-year and the balance observed last week in the Index is more likely an early start to a decline going into September. The reason for this is speculated to be tied to the start of the school year, when families are either delaying or cooling down from summer travels. Accordingly, local production is more closely matched to local demand, and hence imports decline.
The second observation to note is that the likely effects as measured in this week’s EIA report release are arguably much clearer for distillates and less so for jet & kerosene. To the extent that distillates products are less commonly used in the United States at this time of year, the drop in exports will back up barrels in storage, contributing to a distillates-specific build. Jet & Kerosene, meanwhile cannot be applied the same certainty, since the decline in imports is relatively more likely to have been a substitution away from imports towards supplies in storage as was the case for distillates. With US-wide refinery utilization rates running at record levels, the result is still likely to be a build, but with less overall certainty than for distillates.
Navarik Data’s unique forward-looking reports are uniquely placed to advise whether or not these trends continue.
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