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The Impact of Lower Gasoline Production on Gasoline Stocks

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Gasoline stocks and production

In its Weekly Petroleum Status Report released on November 18, 2015, the EIA (U.S. Energy Information Administration) reported that gasoline inventories were 214.3 MMbbls (million barrels) for the week ended November 13, 2015. Inventories rose by 1.1 MMbbls compared to the previous week ended November 13, 2015. Gasoline inventories are still above the upper limit of the five-year average range.

US gasoline production fell from ~9.7 MMbpd (million barrels per day) in the week ended November 6, 2015, to ~9.6 MMbpd in the week ended November 13, 2015. Gasoline production for the last four weeks averaged more than ~9.6 MMbpd for the week ended November 13, which is almost unchanged from the previouis week’s production averages.

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Gasoline demand

Gasoline demand is 9.1 MMbpd for the week ended November 13. Gasoline demand fell by ~0.38 MMbpd compared to the demand for the previous week, which ended on November 6.

US gasoline demand is derived mostly from motorists. Most vehicles run on gasoline in the United States. As winter approaches, drivers don’t drive as much. Gasoline consumption has gradually decreased after touching record highs in the summer of 2015.

What does this mean?

In the second part of this series on refinery inputs, we saw that refinery stocks rose in the week ended November 13, 2015. This means refined production should increase. Gasoline production decreased, and the stock increased. This stock build is mainly due to a fall in gasoline demand.

When gasoline inventories fall, it’s usually bullish for gasoline prices. But for the week ended November 13, it wasn’t bullish for gasoline prices due to decreased demand and refiners generating revenue only when refined products are sold to consumers.

So less demand directly impacts refining companies such as HollyFrontier (HFC), Western Refining (WNR), Phillips 66 (PSX), Valero Energy (VLO), Tesoro (TSO), and Marathon Petroleum (MPC).

Some of these companies are components of the iShares US Oil & Gas Exploration & Production ETF (IEO), the Energy Select Sector SPDR ETF (XLE), and the Vanguard Energy ETF (VDE). Marathon Oil (MRO) accounts for 1.7% of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).

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