Analysis of EIA data: Gasoline stocks dip again as demand edges higher
New York, NY - February 25, 2009
US implied gasoline demand continued its improvement from the start of the year, causing gasoline inventories to fall counter-seasonally despite a marked increase in production, an analysis of the weekly oil data released Wednesday by the Energy Information Administration (EIA) showed. Implied demand is the amount of product that moves through the US distribution system; it is not actual end consumption.
Week-over-week, implied gasoline demand climbed 102,000 barrels per day (b/d) to 9.01 million b/d, and on a four-week moving average gasoline demand at 8.985 million b/d was 1.7% above year-ago levels. Implied gasoline demand on a four-week moving average increased by 0.9 percentage points from the previous EIA report.
The continued climb in demand caused gasoline stocks to drop 3.322 million barrels to 215.342 million barrels. At 215.342 million barrels, gasoline stocks were 5.7 million barrels below the five-year average and 17.277 million barrels below year-ago levels.
With retail gasoline prices still at relatively low levels and the seasonal changeover in gasoline specifications from winter to summer, which would cause movement of higher Reid Vapor Pressure (RVP) winter grades out of primary storage through the distribution system, appears to be feeding into higher demand levels. Despite a pullback in the New York Mercantile Exchange (NYMEX) RBOB crack spread of $6.9 per barrel the week ending February 20, refiners pushed the gasoline yield to 62.32%, causing production to jump 172,000 b/d to 8.937 million b/d.
Gasoline production at 8.937 million b/d surpassed the peak of the five-year range of 8.778 million b/d.
Total refining yields surged to 104.49% from the previous week's 101.59%, suggesting refiners were using a slate of heavier sour crudes and pushing hard the fluid catalytic crackers.
While gasoline demand had reversed a freefall that occurred during the second half 2008, distillate demand was tepid at best. Distillate demand dropped 371,000 b/d to 3.988 million b/d week-over-week.
On a four-week moving average, distillate demand at 4.171 million b/d was 1.6% below year-ago levels. This was a decline from the previous report of 1.9 percentage points, and may reflect lower rail and trucking traffic. With the seasonal window for winter fuels narrowing rapidly, distillate demand may not show much improvement in coming weeks. But the spring agricultural crop planting season will likely trigger a pick-up in demand for diesel.
Refinery demand for crude oil was held in check partly by the maintenance season, which kept over 1 million b/d of distillation capacity offline. Also, stock-building has slowed as imports remain low, below the 9 million b/d level. Weaker imports may be the result of the OPEC supply cuts that went into effect January 1. After plummeting 859,000 b/d the previous week, crude imports edged down another 24,000 b/d to 8.769 million b/d. On a four-week moving average, US crude imports at 9.313 million b/d were 765,000 b/d below year-ago levels.
As a result of low levels of imports, US crude stocks increased a smaller-than-expected 717,000 barrels to 351.347 million barrels. Still, at 351.347 million barrels, US crude stocks were 43.135 million barrels above the five-year average and 42.842 million barrels above year-ago levels.
At the NYMEX crude oil futures contract delivery point in Cushing, Oklahoma, crude inventories fell for the second week in a row, declining 358,000 barrels to 34.506 million barrels. The two-week decline in inventories at Cushing suggests that stocks at 34.916 million barrels the week ending February 6 may have reflected maximum operable capacity at the delivery point. The decline occurred despite the continuing contango in the front of the futures curve. Contango is the industry vernacular for the condition whereby prices for nearby delivery are lower than prices for future-month delivery.
* In a typical comparison of commodity prices for current deliver versus future delivery, it_s natural to assume that with each passing month the price would be higher to reflect the costs of storing the commodity as well as the cost of money for loss opportunity costs and other factors. In oil, such a price pattern is called contango. The opposite pattern in oil, where nearby prices are higher than those for future-month delivery is known as backwardation.
* Implied demand is a calculation based on imports/exports, plus production, plus the change in inventory levels.