Viewpoint: US gasoline market shrugs off record demand

OREANDA-NEWS. August 16, 2016. Brimming US gasoline supply will likely outweigh record demand for the balance of 2016.

The Energy Information Administration's Short Term Energy Outlook predicts 2016 demand will continue to outpace records set in 2007 with an average of 9.29mn b/d consumed. Higher employment and lower retail prices contribute to a 2.5pc increase in highway travel, but increased fuel economy will partially offset this climb, according to the EIA. US gasoline demand in 2016 is outpacing 2015 by an average of 287,000 b/d.

The rise in demand is not enough to pull prices higher, however, and the pace of consumption is not matching current production levels. This has led to lower prices that have spurred domestic demand. The average spot market price in the US is currently sitting at \\$1.32/USG.

Refiners have dialed back their crude run rates but there are limits to the cuts, as a strong 3-2-1 crack spread in the US Gulf coast continues to encourage the processing of crude. US Gulf coast producers only saw the arbitrage opportunities to ship into New York Harbor and Chicago open for brief moments in 2016. In fact, the New York Harbor gasoline market has averaged only a 1.93?/USG premium to the US Gulf coast market. The Chicago market is averaging a discount of 1.18?/USG to the US Gulf coast.

This steady supply of US Gulf coast gasoline is not being rapidly purchased abroad as exports, particularly into Latin America, have struggled to rise above the 450,000 b/d mark most of the year. US producers have faced competition from Europe at times, and even Asia has been heard sending gasoline to the Pacific side of South America.

Earlier this year, many blenders and refiners were expecting to see blendstock supplies to tighten again. The main concern was that there would not be enough alkylate, reformate and other high octane, low RVP blending material. This led to stockpiles of blendstocks being created earlier in the year, so the tightness seen at the end of the summer in 2015 has not re-appeared.

The new concern is that the blendstocks will not exit storage as they usually do in late August and early September. This supply will stay on hand, sources said, and discourage the market from building up diesel supplies for the winter heating oil season.