Strong Gasoline Demand Supports RBOB Prices

  1. Predictions of falling hydrocarbon use not apparent
  2. Gasoline demand hits new high
  3. Price seasonality could reach support sooner than expected
  4. Natural gas storage continues to lag long-term averages.

 

Al pic 2009_cropped

Sincerely,
Alan Levine, Chairman of Powerhouse
(202) 333-5380
 
 

The Matrix

The past few years have seen pronouncements on the soon-to-be end of the hydrocarbon age. One expert noted in 2017 that ”continuing technological innovation in battery technology has made the electric drivetrain a serious competitor for the internal combustion engine, leaving crude oil challenged by electricity while at the same time that natural gas is being challenged by solar and wind in electricity generation.” (Oilprice.com, Nov. 2, 2017) Saudi Arabia itself has taken steps to diversify its revenue streams.

How ironic, then, to learn from the Energy Information Administration, that U.S. gasoline demand reached an all-time high in June of this year. EIA put monthly demand at 9.7 million barrels daily. The previous high, 9.8 million barrels daily was seen in August, 2017.

Strong demand, however, must compete with seasonal factors. And in the case of gasoline, seasonality strongly favors the bear side.

NYMEX Gasoline Prices: Seasonal Pattern 2000 – 2017 Source: CME Group

Winter spec gasoline is now the spot futures contract. It is priced below spring spec gasoline because of its higher RVP content. (RVP is a measure of how easily the fuel evaporates at a given temperature. The more volatile a gasoline (higher RVP), the easier it evaporates.) While spring spec gasoline is priced higher than winter spec, its value tends to fall because of spread relationships among gasoline futures months.

The Powerhouse chart, above, shows that gasoline futures prices tend to reach annual highs in May. They move lower from that time until year end. These prices are averages and show considerable variation from year to year.

Buyers of spring gasoline should now pay particular attention to RBOB prices. Strong demand could act as a break on gasoline price sell-offs this winter, moving the optimal time for getting long earlier than usual.

 

Supply/Demand Balances

Supply/demand data in the United States for the week ending August, 31 2018 were released by the Energy Information Administration.

Total commercial stocks of petroleum rose 3.6 million barrels during the week ending August 31, 2018.

There were builds in stocks of gasoline, K-jet fuel, distillate fuel oil, propane, and other oils. There were draws in stocks of fuel ethanol and residual fuel oil.

Commercial crude oil supplies in the United States decreased to 401.5 million barrels, a draw of 4.3 million barrels.

Crude oil supplies decreased in four of the five PAD Districts. PAD District 2 (Midwest) crude oil stocks fell 1.6 million barrels, PADD 3 (Gulf Coast) stocks declined 2.5 million barrels, PADD 4 (Rockies) stocks retreated 0.9 million barrels, and PADD 5 (West Coast) stocks decreased 0.4 million barrels. PADD 1 (East Coast) crude oil stocks were unchanged from the previous report week.

Cushing, Oklahoma inventories increased 0.5 million barrels from the previous report week to 24.8 million barrels.

Domestic crude oil production was unchanged from the previous report week at 11.000 million barrels per day.

Crude oil imports averaged 7.714 million barrels per day, a daily increase of 229,000 barrels per day. Exports decreased 271,000 barrels daily to 1.508 million barrels per day.

Refineries used 96.6 per cent of capacity, an increase of 0.3 percentage points from the previous report week.

Crude oil inputs to refineries increased 81,000 barrels daily; there were 17.647 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, rose 44,000 barrels daily to 17.963 million barrels daily.

Total petroleum product inventories saw an increase of 7.9 million barrels from the previous report week.

Gasoline stocks increased 1.8 million barrels from the previous report week; total stocks are 234.6 million barrels.

Demand for gasoline decreased 166,000 barrels per day to 9.734 million barrels per day.

Total product demand decreased 474,000 barrels daily to 21.663 million barrels per day.

Distillate fuel oil stocks increased 3.1 million barrels from the previous report week; distillate stocks are 133.1 million barrels. National distillate demand was reported at 4.290 million barrels per day during the report week. This was a weekly decrease of 146,000 barrels daily.

Propane stocks rose 2.0 million barrels from the previous report week; propane stock are 73.4 million barrels. Current demand is estimated at 1.068 million barrels per day, an increase of 293,000 barrels daily from the previous report week.

 

Natural Gas

According to the Energy Information Administration:

Net injections fell to slightly less than the five-year average. Net injections into storage totaled 63 Bcf for the week ending August 31, compared with the five-year (2013–17) average net injections of 65 Bcf and last year’s net injections of 60 Bcf during the same week. Working gas stocks totaled 2,568 Bcf, which is 590 Bcf lower than the five-year average and 643 Bcf lower than last year at this time.

Working gas stocks remained lower than the five-year range and continued to fall. The average rate of net injections into storage is 17% lower than the five-year average so far in the 2018 refill season. If the rate of injections into working gas matches the five-year average of 10.8 Bcf/d for the remainder of the refill season, total inventories will be 3,225 Bcf on October 31, which is 335 Bcf lower than the five-year low of 3,560 Bcf.

Futures trading involves significant risk and is not suitable for everyone. Transactions in securities futures, commodity and index futures and options on future markets carry a high degree of risk. The amount of initial margin is small relative to the value of the futures contract, meaning that transactions are heavily “leveraged”. A relatively small market movement will have a proportionately larger impact on the funds you have deposited or will have to deposit: this may work against you as well as for you. You may sustain a total loss of initial margin funds and any additional funds deposited with the clearing firm to maintain your position. If the market moves against your position or margin levels are increased, you may be called upon to pay substantial additional funds on short notice to maintain your position. If you fail to comply with a request for additional funds within the time prescribed, your position may be liquidated at a loss and you will be liable for any resulting deficit. Past performance may not be indicative of future results. This is not an offer to invest in any investment program.

Powerhouse is a registered affiliate of Coquest, Inc.

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