Gasoline Production and Demand Increase in the Week Ended July 17
Crude Oil Stocks Were Up Last Week, Pressuring WTI
Gasoline production
Gasoline production increased from ~9.66 million barrels per day (or MMbpd) in the week ended July 10 to 10.1 MMbpd in the week ended July 17. Gasoline production averaged 9.92 MMbpd over the last four weeks. That’s 6.2% higher than the ~9.33 MMbpd average over the corresponding period last year. Compared to the four weeks ended July 10, four-week average supplies increased 0.4%.
Gasoline demand
Gasoline demand increased from 9.40 MMbpd in the week ended July 10 to ~9.75 MMbpd in the week ended July 17. Gasoline demand averaged 9.6 MMbpd over the last four weeks. It was ~7% higher than the ~9 MMbpd over the corresponding period last year. Compared to the four weeks ended July 10, the four-week average demand increased by 0.2%.
What does this imply?
As we saw above, production of ~10.1 MMbpd exceeded demand at 9.75 MMbpd in the week ended July 17. While demand increased on a weekly basis, production also increased by almost the same. So, an inventory build would have followed. Therefore, net trade flows seemed to have had a hand in last week’s inventory pullback.
Gasoline consumption forecasts
According to the EIA’s (Energy Information Administration) July Short-Term Energy Outlook report released on July 7, gasoline consumption will increase by 170,000 barrels per day (or bpd), or 1.9%, in 2015 over 2014 levels.
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 fall by 0.2% in 2016 as a result of higher prices and a trend toward more efficient vehicles. The EIA will release its next STEO on August 11.
Increased gasoline consumption is bullish for gasoline prices. Assuming crude oil prices remain relatively subdued, this is positive for refiners such as Marathon Petroleum (MPC) and Tesoro Corporation (TSO). These companies make up 2% of the iShares U.S. Energy ETF (IYE). Increased consumption is also positive for midstream MLPs such as Phillips 66 Partners (PSXP) and MPLX LP (MPLX) if their refining parents decide to ramp up gasoline production due to higher prices. These MLPs’ revenues are driven by the volumes that they transport.
In the next part of this series, we’ll look at the latest trends in distillate inventories.
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