Gasoline is an important fuel used for transportation. To be processed, gasoline requires refined crude oil. So, gasoline demand and stocks affect refinery input demand, which in turn drives crude demand, which in turn drives crude prices.
This is why energy investors keep a close watch on gasoline inventories—they provide a useful snapshot of gasoline demand and supply trends.
Last week, gasoline inventories increased by 3.2 MMbbls (million barrels) to 240.3 MMbbls. Analysts had been expecting an increase of ~2.6 MMbbls. These are the highest levels of inventory since February 2011, and well above the upper limit of the five-year range, as the graph above shows.
Gasoline production and demand
Gasoline production increased from ~8.7 MMbbls per day to ~9.12 MMbbls last week. Gasoline demand increased from ~8.1 MMbbls per day to ~8.8 MMbbls per day in the week prior.
While both production and demand increased, changes in net exports could explain the inventory build.
Increasing stocks are negative for gasoline prices, and this will negatively affect the margins of refineries such as Valero Energy (VLO), Phillips 66 (PSX), Marathon Energy (MPC), and Tesoro Corporation (TSO). Plus, since most of these companies are part of the Energy Select Sector SPDR Fund (XLE), the energy-focused ETF will also feel some pressure from this weakening.
Outlook for gasoline
The U.S. Energy Information Administration’s, or EIA’s, January short-term energy outlook forecasts gasoline consumption to increase by 60,000 bpd (barrels per day) to 9 million bpd in 2015. The EIA estimates that gasoline consumption in 2014 was 8.94 million bpd.
Gasoline consumption is slated to increase in 2015 as a result of falling gasoline prices.
Continue on to the following part of this series to read about changes in distillate inventories last week.