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Lower Gasoline Demand Pushed Inventories to Surge

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Gasoline inventories

The EIA’s (U.S. Energy Information Administration) Weekly Petroleum Status Report released on January 13, 2016, stated that US gasoline inventories rose by ~8.4 MMbbls (million barrels) to settle at 240.4 MMbbls for the week ended January 8, 2016. Current gasoline inventories were just 0.1 MMbbls more than in the same period last year.

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Gasoline production, imports, and demand

US gasoline production rose by 0.06 MMbpd (million barrels per day) to settle at 8.8 MMbpd for the week ended January 8. Present gasoline production levels are 3.3% higher than gasoline production levels in the corresponding period last year.

For the week ended January 8, US gasoline imports fell by 0.16 MMbpd to settle at 0.44 MMbpd. Gasoline imports rose by 12.8% compared to the same period last year.

Also, US gasoline demand was 8.5 MMbpd for the week ended January 8. Demand rose by ~0.34 MMbpd compared to the previous week ended January 1, 2016. Gasoline demand was ~4.2% lower than in the corresponding period last year.

Weak gasoline demand in winter

Gasoline inventories surged for the last two weeks in a row, the largest inventory surge since 1993. However, gasoline demand was weak. Fewer people embark on road trips in the winter months. Production levels were at their peak, which added to inventories for the week ended January 1, 2016. Steady production levels and weak demand added more gasoline to inventories in the last week.

Due to weak demand, gasoline prices will remain lower in the winter months, but prices will rise as refineries begin to switch their low-cost winter gasoline blends to their more expensive gasoline blends and the summer holiday season contributes to gasoline demand in the summer season.

Lower gasoline prices will have a negative impact on refinery revenues. This will impact the profitability of refineries such as CVR Refining (CVRR), Marathon Petroleum (MPC), Phillips 66 (PSX), HollyFrontier (HFC), Tesoro (TSO), Western Refining (WNR), and Valero Energy (VLO).

MPC and TSO collectively account for 3% of the Vanguard Energy ETF (VDE).

Find more updates on distillates in the next part of this series.

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