HOUSTON: Crude inventories on the US Gulf Coast are near their low for the year and may touch a two-year low, said traders, as US crude's wide discount to benchmark Brent fuels exports and the region's refineries run at high utilization rates.
Crude in storage along the US Gulf Coast on Dec. 8 was 217.5 million barrels, near 2017's low of 217.0 million barrels, according to the US Energy Information Administration (EIA). The region's storage hit a record at 280.9 million barrels at the end of March.
"All indicators appear to be trending downward for most of the month," said one trader on Wednesday.
The drop in Gulf Coast, or PADD 3, inventories reflects two key trends: refineries running at 93.4 percent capacity, up from 90.5 percent a year ago, and strong crude exports from the region. Exports hit 1.3 million barrels per day in September, more than double the rate of January, EIA figures show. Wide crack spreads are encouraging refiners to run at high rates.
PADD 3 crude inventories in the country's largest collection of refineries typically reach their lowest point of the year in December or January, according to EIA statistics. In part, the drop follows refiners draining stocks during December to avoid end of year taxes on business personal property, which includes crude oil.
At Dec. 31, parts of Texas and Louisiana assess ad valorem taxes, or taxes based on the value of holdings on that day. The taxes and last-in, first-out accounting creates an incentive for refiners to draw down inventories to cut their tax bill.
These taxes, along with last-in, first-out accounting to value assets, create an incentive to draw down crude stocks in the region at the end of the year by not having to pay the tax inventory stored on their property.