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High Gasoline Inventories Are a Game-Changer for Global Crude Oil Market

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US gasoline inventories 

Citigroup estimates that global gasoline inventories stand at 500 MMbbls (million barrels). Record gasoline inventories have pressured gasoline prices. For more on gasoline prices, please read Part 6 of this series.

Lower gasoline prices impacts the earnings of refiners, who reduce the refining activity. Consequently, demand for crude oil drops due to lower gasoline prices. For more on refinery demand, please read Part 5 of this series. High crude oil and gasoline inventories could extend the bear market for crude oil prices.

On July 27, 2016, the EIA (U.S. Energy Information Administration) reported that US gasoline inventories rose by 0.5 MMbbls (million barrels) to 241.5 MMbbls from July 15–22, 2016.

Market surveys estimated that US gasoline inventories would rise by 36,000 barrels for the same period.

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The larger-than expected rise in US gasoline inventories weighed on gasoline and crude oil prices on July 27, 2016. For more on gasoline prices, please read Part 6 of this series. US gasoline inventories are 10.6% higher than the corresponding period in 2015. They’re also higher than the upper range for the last five years.

Gasoline production, imports, and demand 

US gasoline production rose by 18,000 bpd (barrels per day) to 10,058,000 barrels per day from July 15–22, 2016. Production rose by 0.2% week-over-week and by 4.8% year-over-year.

US weekly gasoline imports rose by 0.028 MMbpd to 0.9 MMbpd from July 15–22, 2016. Gasoline demand rose by 12,000 bpd to 9.8 MMbpd for the same period.

Impact of gasoline inventories

Strong US gasoline production despite record gasoline demand has led to high inventories. The peak summer season will end in five weeks, and high gasoline inventories should pressure US gasoline and crude oil prices.

Multiyear low gasoline and crude oil prices impact the profitability of oil producers and refiners such as Tesoro (TSO) and Stone Energy (SGY). It also affects funds such as the Fidelity MSCI Energy (FENY) and the VelocityShares 3x Long Crude Oil ETN (UWTI).

In the final part of this series, we’ll take a look at US distillate inventories.

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