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Why Did US Gasoline Inventories Increase Last Week?

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US gasoline production

US gasoline production increased from ~9.247 MMbpd (million barrels per day) in the week ending September 11 to 9.545 MMbpd in the week ending September 18. Gasoline production averaged 9.545 MMbpd over the four weeks ending September 18. That’s ~3.6% higher than the ~9.212 MMbpd average over the same period last year. Compared to the four weeks ending September 11, the four-week average fell ~0.6%.

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US gasoline demand

US gasoline demand increased from 8.983 MMbpd in the week ending September 11 to 9.215 MMbpd in the week ending September 18. Gasoline demand averaged 9.163 MMbpd over the four weeks ending September 18. Compared to the four weeks ending September 11, the four-week average demand was flat. But it was ~3% higher than the 8.895 MMbpd recorded over the same period last year.

What does this mean?

As we saw above, production of 9.545 MMbpd exceeded the demand of 9.215 MMbpd in the week ending September 18, despite both production and demand rising on a weekly basis. This difference led to an inventory build, as we saw in the previous part of this series. You should note that net trade flows also affect gasoline inventory levels.

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US gasoline consumption forecasts

According to the EIA’s STEO (Short-Term Energy Outlook) report released on September 9, gasoline consumption will rise by 210,000 bpd (barrels per day), or 2.30%, in 2015 compared to 2014 levels.

According to the report, “The effects of employment growth and lower gasoline prices outweigh increases in vehicle fleet efficiency.” However, the STEO forecasts that consumption will remain flat in 2016 due to a long-term trend toward more efficient vehicles. This will offset the impact of sustained economic growth. The EIA will release its next STEO on October 6.

Increased long-term gasoline consumption would be bullish for gasoline prices in the long term. Assuming crude oil prices (USO) remain relatively subdued, this would be positive for refiners such as Marathon Petroleum (MPC), Phillips 66 (PSX), and Valero Energy (VLO). These companies account for ~9% of the Energy Select Sector SPDR ETF (XLE).

Increased consumption is also positive for midstream MLPs such as MPLX (MPLX), Phillips 66 Partners (PSXP), and Valero Energy Partners (VLP) if their refining parents decide to increase gasoline production as a result of higher prices. The revenues of these MLPs are driven by the volumes they transport.

In the next part of this series, we’ll look at the latest trends in distillate inventories.

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