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Fuel Marketer Intelligence: Supply Chain Dynamics to Retail Fuel Prices
Recently released reports suggest stronger gasoline consumption in the United States this summer compared with preliminary data from the federal government, although a falloff in year-on-year demand from late in the second quarter is still observed. Initial reaction to the new data suggests a more bullish view for gasoline demand during the remaining couple of weeks of the peak driving season in the US, which runs from the Memorial Day weekend through Labor Day.
Gasoline supplied to the primary market during the second quarter averaged 8.93 million bpd, 234,000 bpd or 2.7% above the second quarter 2013, according to data from the Energy Information Administration. Yet, from the start of the third quarter through August 15, implied gasoline demand at 8.978 million bpd averaged 135,000 bpd or 1.5% less than during the comparable period in 2013.
The weakness in this data, which is released weekly on Wednesdays, is a key component for why gasoline futures traded on the New York Mercantile Exchange dropped steadily since early July, diving to a 6-1/2 month low August 18 at $2.6374 gallon. The NYMEX Reformulated Blendstock for Oxygenate Blending futures contract quickly added more than a dime in value from the low through August 22 on a spate of unit outages at refineries.
The data is an implied consumption figure because it measures the difference of existing stocks, new domestic output and imports against exports and week-ending inventory. The difference is the quantity of gasoline before reaching retail outlets, so doesn’t reflect actual consumption by end users.
An August 19 report from MasterCard SpendingPulse said gasoline consumption over the summer is up 1.6% from a year ago. The technology company derives the consumption data from aggregate sales activity on its payment network at retail outlets and estimates all other payment forms, including cash and check. The 1.6% increase is within the report’s margin of error.
Then there’s the Monthly Statistical Report from the American Petroleum Institute released August 21 reporting a 1% increase in gasoline deliveries in July compared with 2013 at 9.1 million bpd, a four-year high in demand for a July, although down 1.9% from June. This compares with EIA data showing implied demand during July averaged 9.03 million bpd, 50,800 bpd or 0.6% less than during July 2013.
API, a national trade group, uses a smaller sampling of data then the EIA, so the EIA data is considered more definitive. Still, the EIA data makes assumptions in its export data which it sources from the Commerce Department monthly.
Both the MasterCard SpendingPulse and API reports boosted expectations for US gasoline demand for the remaining days of the 2014 driving season, bolstered by ongoing data points showing the US economy, including the labor market, is making gains. The improving market sentiment for gasoline demand was also supported by AAA Travel, which forecasts 29.7 million Americans would journey 50 miles or more from home during the coming Labor Day holiday, defined from August 28 through September 1, accounting for 86% of all travelers. That’s up 1.4% from the 2013 Labor Day holiday.
The decline to a 6-1/2 month low by NYMEX RBOB futures came with a 6.8% drop in the net-long position by noncommercial traders also referred to as speculators since they are not hedging a physical position in the market. A long position is taken when the participant expects prices to move higher. The long liquidation came with higher open interest, meaning more trade volume and conviction. It also exposes market participants to short position covering should the market rally.
Taken together, an improving sentiment for US gasoline demand and expected lower refiner output amid unit repairs and maintenance joined by the selloff in futures could boost gasoline prices heading into Labor Day. Supplier postings for gasoline at wholesale distribution terminals are directed by the spot market which trades in a cash differential or a basis against the futures market.
