U.S. Gasoline Supply Climbs to Nearly Three Year High

GasPumpsLRBy Brian Milne, Energy Editor for Schneider Electric

Wholesale gasoline costs entered the final week of January mixed from prior week even as the benchmark futures contract gained 4.0cts over the same time frame, although price pressure will continue to be exerted over retail gasoline prices amid seasonal weakness.

The Energy Information Administration’s U.S. retail gasoline price average, all formulations, was last tallied at a $3.296 gallon one-month low for Jan. 20.

Weekly adjustments to rack postings at major metropolitan markets were mostly shallow save a huge decline in Cleveland, while higher along the West Coast. Spot markets in California are now shifting to costlier lower Reid vapor pressure ratings for gasoline which would underpin higher gasoline rack postings in the coming weeks.

In futures trade, the nearest delivered New York Mercantile Exchange Reformulated Blendstock for Oxygenate Blending contract is trading in the $2.60s gallon range, holding well above the November 2013 $2.4945 gallon low. The RBOB contract, used as a price benchmark for suppliers, has been lent support from a rallying NYMEX ULSD futures contract amid bitter cold weather that is driving strong demand for heating fuels.

Demand for gasoline has been pressured by seasonal weakness exacerbated by snowstorms, some heavy, across large portions of the United States. Gasoline supplied to the primary market has held in the low 8.0 million bpd range so far in January according to EIA data, 3% to 6% below the five-year average.

Also bearish, the domestic supply of gasoline has increased to a nearly three-year high, last measured at 235.3 million bbl as of Jan. 17, with new data set for release Jan. 29. That’s the highest inventory level for gasoline in the country since February 2011 and 3.4% more than the five-year average.

Historically, gasoline supply is highest early in the year as refiners producing more heating fuels throw off higher volumes of gasoline while also preparing for lower output during refinery maintenance. During the late winter, early spring maintenance season, refiners will draw down this supply as refining units shut for work.

This year analysts expect gasoline supply to be well above demand as refiners look to capture higher global demand for diesel fuel through exports, supporting higher refiner output. Moreover, Europe continues to look to the US market to exports its surplus gasoline, with the continent’s road transportation fuel usage dominated by diesel. Additionally, new state-of-the-art refiners in Asia, namely India, will look to export growing volumes of gasoline, putting more gasoline on the water.

About the author

Brian L. Milne is the Energy Editor for Schneider Electric—a global specialist in energy management. Milne has been focused on the energy industry for 18 years as an analyst, journalist and editor. He can be reached at brian.milne@telventdtn.com.

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