WTI Rises on Supply Numbers, but Shrugs Off Crude Inventory Build
US gasoline production
US gasoline production fell from ~9.799 MMbpd (million barrels per day) in the week ending August 28 to 9.587 MMbpd in the week ending September 4. Gasoline production averaged 9.854 MMbpd over the four weeks ending September 4. That’s ~6% higher than the ~9.301 MMbpd average over the same period last year. Compared to the four weeks ending August 28, the four-week average supplies fell ~1%.
US gasoline demand
US gasoline demand fell from 9.438 MMbpd in the week ending August 28 to 9.017 MMbpd in the week ending September 4. Gasoline demand averaged 9.337 MMbpd over the four weeks ending September 4. Compared to the four weeks ending August 28, the four-week average demand fell by ~1.7%. But, it was ~3.8% higher than the 8.992 MMbpd over the same period last year. So, it looks like low gasoline prices are still spurring road trips in the US. This was another factor that contributed to the bullish sentiment around crude oil prices.
What does this mean?
As we saw above, production of 9.587 MMbpd exceeded the demand of 9.017 MMbpd in the week ending September 4, despite both production and demand falling on a weekly basis. This difference led to an inventory build, as we saw in the previous part of this series. You should note that net trade flows also affect gasoline inventory levels.
US gasoline consumption forecasts
According to the EIA’s (Energy Information Administration) STEO (Short-Term Energy Outlook) report released on September 9, gasoline consumption will rise by 210,000 bpd (barrels per day), or 2.30%, in 2015 compared to the levels in 2014.
According to the report, “The effects of employment growth and lower gasoline prices outweigh increases in vehicle fleet efficiency.” However, the STEO forecasts that consumption will remain flat in 2016 due to a long-term trend toward more efficient vehicles. This will offset the impact of sustained economic growth.
Increased long-term gasoline consumption would be bullish for gasoline prices in the long term. Assuming crude oil prices (USO) remain relatively subdued, this would be positive for refiners like Marathon Petroleum (MPC), Phillips 66 (PSX), and Valero Energy (VLO). These companies account for ~9% of the Energy Select Sector SPDR ETF (XLE). Increased consumption is also positive for midstream MLPs like MPLX LP (MPLX), Phillips 66 Partners (PSXP), and Valero Energy Partners (VLP) if their refining parents decide to increase gasoline production due to higher prices. The revenues of these MLPs are driven by the volumes that they transport.