Fuel Marketer Intelligence: Supply Chain Dynamics to Retail Fuel Prices
What looked like a recovery for U.S. gasoline demand during the second quarter fizzled this summer, with demand continuing to slip below the year-ago pace and the five-year average since mid-June with the exception of one week.
In the United States, driving demand is highest during the warm carefree summer months. Yet, federal data shows the highest weekly demand rate so far this year occurred during the week leading up to Memorial Day, with implied demand peeking above the five-year average only once this summer. That compares with nine weeks during the first half of the year, with six of those weeks in the second quarter.
The most recent data from the Energy Information Administration shows gasoline supplied to the primary market down 91,000 bpd or 1.0% during the four weeks ended July 25 compared against the same week in 2013.
The market has watched the erosion in demand versus expectations, and speculators continue to sell out of long positions in the New York Mercantile Exchange gasoline futures contract called Reformulated Blendstock for Oxygenate Blending. The group’s net-long holdings fell three weeks straight through July 26, with a long position taken when the expectation is for prices to climb. Open interest, which refers to the number of futures contract held, fell to a nearly four-month low.
Futures prices took it on the chin in ending July, and gapped lower on the spot continuation chart Aug. 1 to $2.7357 gallon—the lowest price for the RBOB contract since the end of February. The rollover from the August futures contract to September delivery exacerbated the decline, with nearest delivered RBOB futures erasing 12.1cts of its value through the week.
The step selloff came alongside building gasoline inventory as refiners ran their units at the highest rate in more than eight years in July, processing cost-advantaged domestic crude. Gasoline supply increased four consecutive weeks through July 25, climbing 4.5 million bbl or 2.1% to a 218.2 million bbl more than four-month high.
The market is saying the gasoline supply-demand disposition is the most bearish since the winter, when consumption is lowest. That sentiment might be overdone however, with several refiners said to be moving units into maintenance. That would limit the bearish supply building, and there’s still four weeks before Labor Day, after which driving demand typically falls.