Last week, gasoline inventories increased by 0.8 million barrels to ~230 million barrels (or MMbbl). Analysts expected inventories to decline by 2 million barrels.
The above graph shows that weekly gasoline inventories remain outside the five-year range.
Factors that affected inventories last week
Gasoline production decreased from ~9.73 million barrels per day (or MMbbls/d) to ~9.14 MMbbls/d last week. According to the EIA (U.S. Energy Information Administration), gasoline products supplied averaged ~9 MMbbls/d over the last four weeks. This was 2% higher compared to the same period last year.
Gasoline demand decreased from ~9.43 MMbbls/d to ~8.61 MMbbls/d last week.
While both production and demand decreased last week, a decrease in demand seems to have had a more pronounced effect on inventories compared to changes in production, which resulted in the inventory build. Inventories are also impacted by net changes in trade flows.
Outlook for gasoline
The EIA’s latest Short Term Energy Outlook (or STEO) for April reported that US regular gasoline retail prices will average $2.45 per gallon during the 2015 summer driving season from April through September compared to 2014’s average of $3.59 per gallon during the same period. For the same period, the EIA expects consumption to average 9.2 MMbbl/d, which is 0.14 MMbbl/d higher than last summer.
The EIA revised its gasoline consumption growth figure for 2015 upward by 70,000 barrels per day (or bpd) to 150,000 bpd in 2015, a 1.6% increase over consumption in 2014. This was a result of larger-than-expected growth in gasoline consumption over the past six months and strong employment growth.
In the next part of this series, we’ll discuss last week’s changes in distillate inventories.
Gasoline – an important fuel
Gasoline is an important fuel, mainly used for transportation. Gasoline inventories provide a handy snapshot of gasoline demand and supply trends.
Inventory movements affect margins for refineries such as Valero Energy (VLO), Phillips 66 (PSX), HollyFrontier Corp (HFC), and Tesoro Corporation (TSO). VLO, PSX, and TSO make up ~8 % of the Energy Select Sector SPDR ETF (XLE).
An increase in gasoline inventories is bearish for gasoline prices, which is a negative for refiners. The opposite is true when inventories decrease. So investors should watch gasoline inventories closely.