Gasoline Rally is Not What Appears

  1. RBOB stocks above the five-year average
  2. Total oil inventories add eight million barrels
  3. Supplies fall at Cushing OK for first time in 20 weeks
  4. Natural gas stocks erase year-on-year deficit


Al pic 2009_cropped

Alan Levine Chairman, Powerhouse
Table covers crude oil and principal products. Other products, including residual fuel oil and “other oils” are not shown, and changes in the stocks of these products are reflected in “Total Petroleum Products.” Statistics Source: Energy Information Administration “Weekly Petroleum Status Report” available at

The Matrix

Gasoline prices rose to new highs as April came to a close. The enthusiasm that might ordinarily accompany such an advance was absent, however. May futures gained on June, but the spread remained well below recent highs.

April’s conclusion is important in gasoline’s annual price cycle. And this year’s price action has been almost textbook perfect. RBOB prices tend to bottom in the fourth quarter. They rally into the spring, reflecting refinery turnarounds which cut into RBOB stocks. This year gasoline stocks are abundant, sitting above the top of the five year range for this time of year. National supplies are at 227.5 million barrels, nearly 16 million barrels more than last year. This is an increase of 7.5 per cent year on year.

This year, RBOB hit its low on January 13, 2015 at $1.2265. Subsequently prices have rallied, moving above $2.00, a level not seen since late November, 2014. Prices are nearing resistance around $2.09. A fifty per cent retracement of the move down from $3.1520 last June is at $2.19.

Another indication that gasoline prices may be reaching their second quarter high may be seen in the spread between May and June futures. May gasoline futures rallied modestly in April from May under June by 70 points to May futures at a small premium. This was well below the $0.0216 high seen in March, suggesting little bullish momentum.









If April does prove to be the top of this year’s rally, “an average spring-to-winter decline in the last 32 years would target a 33% drop, or a fall of more than 66cts/gal as winter approaches. Historical odds favor November or December as the month most likely to capture the bottom,” according to one technical analyst. This would be around $1.37, slightly higher than January’s low.


Supply/Demand Balances

Supply/demand data in the United States for the week ending April 24, 2015 were released by the Energy Information Administration.

Total commercial stocks of petroleum increased 7.7 million net barrels during the week ending April 24, 2015.

Builds were reported in stocks of gasoline, K-jet, propane, and other oils. Fuel ethanol and residual fuel oil saw a decline. Distillate fuel oil stocks were unchanged.

Crude oil supplies in the United States increased to 490.9 million barrels, a build of 1.9 million barrels.

Crude oil supplies increased in PAD Districts on the East Coast (+1.5 million barrels) and in the Gulf Coast (+1.4 million barrels). PADD 2 (Midwest) stocks declined 0.1 million barrels. PADD 4 (Rockies) crude oil stocks declined 0.1 million barrels. Crude oil stored in west coast facilities fell 0.8 million barrels.

Cushing, Oklahoma inventories declined 0.5 million barrels. This puts Cushing storage at 61.7 million barrels, the first storage draw from Cushing in twenty weeks.

Domestic crude oil production increased 7,000 barrels daily. Daily production for the week ending April 24 was 9.373 million barrels. This marginal increase in production came from Alaska drilling sites – crude oil production in the Lower 48 was unchanged at 8.861 million barrels daily. Crude oil imports averaged 7.446 million barrels per day, a daily decrease of 319,000 barrels.

Refineries used 91.3 per cent of capacity, an increase of 0.1 percentage points from the previous week.

Crude oil inputs to refineries rose by 118,000 barrels daily; there were 16.1 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, increased 32,000 barrels per day to 16.340 million barrels daily.

Total petroleum product inventories saw an increase of 5.8 million barrels. Gasoline stocks rose 1.7 million barrels.

Total product demand gained 437,000 thousand barrels daily to 19.576 million barrels.

Demand for gasoline declined 265,000 barrels per day to 8.920 million barrels daily.

Distillate fuel oil supply was unchanged. Stocks are 129.3 million barrels. National demand was reported at 3.993 million barrels per day during the report week. This was a weekly increase of 139,000 barrels daily.

Propane stocks rose 2.6 million barrels. There are 64.7 million barrels in storage. Current demand is estimated at 861 thousand barrels per day, down 26,000 barrels daily from the previous report week.

Natural Gas

According to EIA: Working gas in storage was 1,710 Bcf as of Friday, April 24, 2015, according to EIA estimates. This represents a net increase of 81 Bcf from the previous week. Stocks were 741 Bcf higher than last year at this time and 75 Bcf below the 5-year average of 1,785 Bcf.

The injection was slightly lower than expected. June futures prices added 14.5 cents to value but failed to break through a long channel of resistance at $2.73. Despite the rally, analysts still expect production to continue at a high level.

Horizontal rigs now make up 70 per cent of active rigs, the highest percentage of rigs ever recorded. Such rigs provide great efficiency and initial production rates. According to one analyst, “Since January 2012 the amount of horizontal wells drilled per month has increased from 1200 to nearly 2000, and this has happened despite an increase in the number of horizontal rigs by only 8%.” Also there is a backlog of wells completed but not connected to offtake. They can be put into production as pipeline capacity develops.


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