Gasoline demand is MIA.
Per last week’s release from the Bureau of Economic Analysis (BEA), gasoline expenditures in the third quarter were less than commensurate with the increase in retail gasoline prices. Thus, here at , we maintain that the consumer’s appetite for gasoline is becoming increasingly elastic.
Gasoline at the pump was about 50 cents a gallon (-16%) cheaper this year compared to last, yet gasoline demand over the last four weeks is on par to a year ago (9.03 MMbbl/d), i.e. when the global economy was staring into the abyss.
U.S. suppliers of crude oil have apparently lost our address. Over the last four weeks imports averaged only 8.6 MMbbl/d. That is 1.6 MMbbls (-15.7%) below a year ago and 1.4 MMbbl/d (-13.7%) below the 2003-2007 timestep. That is low even by turnaround season standards.
As such, we have little doubt that the trifecta of weak demand – as evidenced by poor refinery economics in the last half of September, first half of October – as well as the flattening in the forward curve and strong domestic production reduced demand for foreign oil.
Refinery activity continues to lag and gasoline production ramped up for a second straight DOE report. Thus, despite being in the midst of turnarounds, supplies of products, both gasoline and distillate fuels, are holding steady.
Furthermore, a rebound in margins in the latter half of October, along with the lack of carry in the NYMEX WTI term structure, will incentivize refiners to build products, post turnaround season, i.e. minimize crude oil stocks and maximize product stocks into the NYMEX RBOB and heating oil curves.
Finally, per yesterday’s post DOE settles, the contango in the NYMEX gasoline curve increased compared with last Wednesday. That is curious, in that the curve had been flattening for most of October. Whereas a week ago yesterday the summer RBOB strip was in backwardation, yesterday the curve settled in a well defined contango.
As far as middle distillates go, the contango in the NYMEX heating oil market is nearly identical to where it was a year ago. As discussed in today’s issue of , the carry in the NYMEX product curves provide the incentive for refiners to boil through their crude oil. as we look at products stocks, the drawdown in gasoline stocks over the last four DOE reports is 2.8%, compared with an average draw of 4%. In distillates we have seen a 2.9% draw against an average draw of 3.2%.
In other words, we will venture that the extant draw in products has not been commensurate with the pullback in refinery activity. More importantly, the forward curve in London crude oil has not budged. Therefore, this leads us to believe that demand is still lacking in this market.
Stephen Schork is the Editor of, and has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.