Gasoline is an important fuel for transportation that requires refined crude for processing. So, gasoline demand and stocks affect refinery input demand, which in turn drives crude demand. This in turn drives crude prices.
Therefore, energy investors closely watch gasoline inventories, as they give a handy snapshot of gasoline demand and supply trends.
Last week, gasoline inventories increased by 0.6 MMbbls (million barrels) to 240.9 MMbbls, while analysts were expecting an increase of ~800,000 to 1 million barrels. This is the highest inventory since February 2011. At these levels, gasoline inventories are now well above the upper limit of the five-year range as the graph above shows.
Gasoline production and demand
Gasoline production increased from ~9.12 MMbbls per day to ~9.21 MMbbls last week. Gasoline demand decreased from ~8.87 MMbbls per day to ~8.85 MMbbls per day in the week prior.
An increase in production and decrease in demand caused gasoline inventories to build. Net changes in exports could also be another reason for the inventory build.
Increasing inventories are negative for gasoline prices, which will negatively affect the margins of refineries like Valero Energy (VLO), Phillips 66 (PSX), Marathon Energy (MPC), and Tesoro (TSO). Plus, since most of these companies are part of the Energy Select Sector SPDR ETF (XLE), the energy-focused ETF will also feel some pressure from this weakening.
Outlook for gasoline
EIA’s January Short-Term Energy Outlook forecasts gasoline consumption to increase by 60,000 barrels per day to 9 MMbbls per day in 2015. The EIA estimates that gasoline consumption in 2014 was 8.94 MMbbls per day.
Gasoline consumption is slated to increase in 2015 as a result of falling gasoline prices. Continue to the following part of this series to read about changes in distillate inventories last week.