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Will the Gasoline Demand Fall More?

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Gasoline inventories

The EIA (U.S. Energy Information Administration) released its Weekly Petroleum Status Report released on December 16, 2015. It reported that the US gasoline inventories rose by ~1.7 MMbbls (million barrels) to settle at 219.4 MMbbls for the week ending December 11.

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Gasoline production and imports

For the week ending December 11, the US gasoline production rose by 0.10 MMbpd (million barrels per day) to settle at 10 MMbpd. The current gasoline production levels are 3.1% higher than gasoline production in the same period last year.

The US gasoline imports rose by 0.02 MMbpd to settle at 0.66 MMbpd for the week ending December 11. Gasoline imports fell by 14.6% compared to the same period last year.

Gasoline demand

For the week ending December 11, the US gasoline demand was 9.2 MMbpd. The demand fell by ~0.20 MMbpd compared to the previous week ending December 4. The current gasoline demand is ~1.6% lower than in the same period last year.

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Less gasoline demand resulted in inventory builds

Gasoline production and imports rose in the last week, but the demand is low compared to last year. Over the last two weeks, the gasoline demand is very strong due to mild weather—except in some US regions. Most of the vehicles in the US use gasoline. Due to ordinary temperatures, most of the vehicles are still on the roads. Winter vacation trips resulted in strong gasoline demand.

The rise in the temperatures in North America, due to the mid-winter season, resulted in most of the vehicles going off the road. This caused the gasoline demand to fall. The gasoline demand is expected to fall more during the winter season. The gasoline inventories rose last week. The inventories could continue to rise due to less demand.

The decreased gasoline demand and higher inventories have a negative impact on the prices. When the prices fall, produced products’ selling price also falls. This would have a negative impact on refineries’ profitability like Tesoro (TSO), Phillips 66 (PSX), Western Refining (WNR), Holly Frontier (HFC), and CVR Refining (CVRR).

Tesoro accounts for 3.1% and 0.93% of the Energy Select SPDR (XLE) and the Vanguard Energy ETF (VDE).

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