Summer Hope Dashed as Gasoline Supply Swamps Market
Tuesday August 2, 2016
Fuel Marketer Intelligence: Supply Chain Dynamics to Retail Fuel Prices
Gasoline futures swung to a five-month low of $1.2760 gallon in ending July business before paring the decline on technical-driven short covering ahead of the August contract expiration, with the low plumbed during peak seasonal driving demand in the United States amid a market awash in supply.
The national inventory of gasoline increased during July, and at a time when stocks are typically drawn down amid strong summer demand. The gasoline buildup was unexpected, and has upended a widely held outlook that the global market would reach a balance between supply and demand sometime during the second half of 2016.
US gasoline supply increased during each of the three weeks through July 22, according to the most recent data from the Energy Information Administration, and in six of the past eight weeks, as refiners ramped up output and imports surged. EIA shows national gasoline inventory at 241.5 million bbl on July 22, the most since the end of April, and 25.5 million bbl or 11.8% above year prior.
Gasoline Demand
Preliminary demand data from EIA shows gasoline supplied to market at a record pace so far in 2016, slipping below the year ago weekly rate only three times since mid-May. Cumulatively, US implied gasoline demand has averaged 9.418 million bpd in 2016 through July 22, 336,000 bpd or 3.7% above the comparable year ago period and an astounding 614,000 bpd or 7.0% more than the five-year average.
The strong demand rate demonstrates gasoline’s elasticity, with low retail prices and declining unemployment prompting more road travel. The Federal Highway Administration shows the 12-month annual vehicle-distance traveled on US roads at an all-time high of 3.171 billion miles in May, the latest data available, 3.4% above May 2015.
Yet, the demand rate is still not strong enough to work down inventory, in part due to a high rate of refinery production of gasoline that averaged 9.69 million bpd cumulatively from Jan. 1 through July 22, 208,200 bpd or 2.2% more than during t...