Gasoline is an important fuel and it’s mostly used for transportation. Gasoline requires refined crude for processing.
Previously in this series, we discussed how a crude inventory build is bearish for crude prices. Likewise, an inventory draw would be bullish for crude prices. The same logic holds true for gasoline inventories and gasoline prices.
So crude inventories are affected by refinery inputs. These, in turn, are determined by the demand for refined products—gasoline and distillates. Therefore energy investors watch gasoline inventories closely. Gasoline inventories provide a handy snapshot of gasoline demand and supply trends.
Last week, gasoline inventories remained unchanged. Analysts’ expectations had pegged an inventory decline of 2 MMbbls. The graph above notes that gasoline inventories are outside the five-year range.
Factors that affected inventories
Gasoline production decreased from ~9.66 million barrels per day, or MMbbls/d, to ~9.52 MMbbls/d last week. According to the EIA (U.S. Energy Information Administration), total gasoline products supplied averaged over 8.7 MMbbls/d over the last four weeks. This was 4% higher—compared to the same period last year.
Gasoline demand decreased from ~8.9 MMbbls/d to ~8.6 MMbbls/d last week.
While changes in demand were more pronounced than changes in production, inventories seem to have also been affected by net changes in exports to result in a net effect of the same gasoline inventories as last week.
Inventory movements affect refineries’ margins—like Valero Energy (VLO), Phillips 66 (PSX), Marathon Energy (MPC), and Tesoro (TSO). These companies are part of the Energy Select Sector SPDR ETF (XLE). All these companies make up ~10% of this energy ETF.
Outlook for gasoline
Following falling crude prices and rising crude inventories, the EIA’s February STEO (“Short-Term Energy Outlook”) reported that US weekly regular gasoline retail prices fell to an average of $2.04 per gallon on January 26—the lowest weekly price since April 6, 2009. Although gasoline prices have since increased, the EIA expects US regular gasoline retail prices to average $2.33 per gallon in 2015 compared to 2014’s average of $3.36 per gallon. At these lower prices, gasoline consumption is slated to increase by 80,000 barrels per day, or bpd, to 9 MMbbls/d in 2015. In 2014, the EIA estimated that gasoline consumption was 8.92 MMbbls/d.
In the next part of this series, we’ll discuss the changes in distillate inventories last week.