Despite near-term technical signals, RBOB market is not bullish.
According to a release on Friday from the American Petroleum Institute (API), U.S. gasoline demand during the summer driving season (June to August), was at its lowest since 2008!
That is rather interesting, given that U.S. retail gasoline prices averaged $3.972 a gallon in summer 2008 and 4.6 cents of the consumer dollar was dedicated to gasoline expenditures as a result. This summer gasoline at the pump averaged $2.730 a gallon, which translated into 3.24 cents on the consumer dollar through July.
Yet, according to the API, gasoline deliveries were 0.25% below 2009, but 1% above 2008. On the other hand, gasoline deliveries in 2008 were the lowest low since 2000.
Furthermore, the API also noted that demand for ultra-low sulfur diesel was also lower than last year. August deliveries averaged 2.898 MMbbl/d, down 0.1 percent from August 2008. That does not bode well for intermodal demand, a key barometer of this nascent recovery.
The weak demand figures from the API make sense in light of what we saw from the EIA this summer. According to the weekly numbers from the government, gasoline stockpiles rose by over 10 MMbbls this summer. It was the first net increase in supply since the EIA began recording the weekly numbers in 1990. What’s more, total distillate supplies rose by 27.3 MMbbls or 52% above the average since 1990.
Looking ahead to winter, a rise in natural gasoline values hints of refinery demand for pentanes as they schedule their crude oil slates for winter-grade gasoline production. From the start of the year through the Labor Day holiday (Sep 06) Mt. Belvieu natural gasoline averaged 96 cents on the dollar to spot Nymex WTI. Since then the ratio has tightened to 99 cents.
In this vein, the term structure of the Nymex gasoline market does not signal concern regarding the future availability of supply this winter and next summer. As illustrated in the Chart of the Day in today’s issue of The Schork Report, the structure of the curve for both high and low RVP material is in contango. This carry in the market indicates a comfortable level of supply relative to demand.
Compare this structure to the 2008 curve. The front-end of the winter and the following summer were backwardated. That is to say, the market was charging a premium to own nearby material. Thus, unlike today, two years ago the market was showing concern regarding the level of supply relative to demand.
This concern was not unfounded. Gasoline stocks ended the summer of 2008 at 195.7 MMbbls or around 13% below were they currently stand. In fact, gasoline stocks likely ended this summer 13% above the average since the start of the decade and at the highest level since 1987.
Bottom line, discretionary demand for gasoline this summer was 31% below 2008, but demand was only slightly better. Gasoline stocks are at the highest level in over a generation and downstream capacity is apparently already setting up for the winter blending season. This is not a bullish signal.
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Stephen Schork is the Editor of The Schork Reportand has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.