Could US Gasoline Surplus Tame Pump Prices?
U.S. gasoline supplies should start the summer driving season at their highest level since 1999, helping to temper a surge in pump prices linked to the soaring cost of crude oil.
The outlook for high inventories comes amid shrinking American demand for the motor fuel and robust imports from Europe -- factors that will keep stockpiles plump despite low production from domestic refiners, analysts said.
"We'll continue to have above-average gasoline inventories heading into summer and, if it weren't for the high cost of crude, the price prospects for gasoline would be weaker than they've been for years," said Tim Evans, energy analyst at Citigroup Futures Research in New York.
U.S. gasoline stockpiles hit a 14-year high of 236 million barrels in March even as surging oil costs pulled pump prices to record levels over $3.20 per gallon.
Stockpiles have eased back since then as refiners slowed output due to seasonal maintenance and weak profit margins, and further declines are expected in the coming weeks.
But the U.S. government's Energy Information Administration said it still expects inventories remain over 219 million barrels by the end of May -- the traditional start to the summer vacation season -- putting them at their highest level for that time of the year since 1999.
"For the consumer, this is a good thing because it is keeping gasoline prices from going completely crazy," said Sander Cohan, oil market analyst at Energy Security Analysis Inc in Boston.
The two main factors protecting gasoline inventories from a sharp decline before driving season, experts said, are soft consumption and robust import levels.
The EIA expects this year's summer gasoline demand in the United States -- a country known for its resilient love for road travel -- to shrink for the first time since 1991 under the weight of an economic slowdown.
"We agree with the government that summer gasoline demand will shrink this year, which will be a key factor keeping stockpile levels relatively high," said Eric Wittenauer, analyst at Wachovia Securities in New York.
Meanwhile, imports from Europe are likely to continue to push into the U.S. market. Europe increasingly favors diesel as a motor fuel, leaving it with an oversupply of gasoline from its refineries that typically sails west across the Atlantic.
"There's an overall European surplus of gasoline," said ESAI's Cohan. "Certainly European imports will provide some of the balance."
The expected robust stockpile levels at the start of the summer driving season, which runs from Memorial Day weekend in May to Labor Day weekend in early September, will come despite below-normal output levels from domestic refiners.
"We're anticipating that refiners will wait as long as possible to start producing more gasoline," said Cohan. "Until they can get a more favorable crude price or until they absolutely have to because of low stockpiles, they won't."
Valero Energy, Tesoro and ConocoPhillips have each said they have reduced production from their U.S. refineries due to poor profit margins -- adding to output losses from maintenance shutdowns.
U.S. refinery utilization rates dropped in late March to the lowest level since 2005, when two major hurricanes had flooded plants along the Gulf Coast, and they've climbed back only slightly since then, according to government data.