NYMEX Gasoline futures closed down two cents at $2.62/Gal today. The NYMEX gasoline contract is now down 23 percent since the middle of March. Refiners on the East Coast are heading for the exits. Will gasoline demand recover this Summer? In today’s blog “No Apparent Demand – US Gasoline Thirst Evaporates” we take a closer look at the fundamentals.
We previously discussed the potential shortage of gasoline on the east coast because of refinery shutdowns (see Don’t Let The Sun Go Down on Me Part I). We have also talked about the overall decline in gasoline demand and its replacement by ethanol in (Ethanol Gasoline and Refineries: Another One Bites The Dust). Inventory data published yesterday by the Energy Information Administration (EIA) in their weekly petroleum supply report indicated that total US gasoline stocks increased by 2 MMBbl to 204.8 MMBbl over the last week suggesting soft demand. Total US gasoline imports over the week fell by 215 MBbl/d to 773 MBbl/d. Exports were unchanged at 378 MBbl/d. Refinery gasoline production increased by 258 MBbl/d to 9.2 MMBbl/d.
Today we are going to try and understand what is going on behind the gasoline inventory numbers by calculating apparent demand. Apparent demand is a relatively simple calculation using EIA data to estimate how much gasoline is being consumed in the US on a daily basis. The following data (available on the EIA website with extensive history) are the variables:
- Weekly U.S. Imports of Total Gasoline (MBbl/d)
- Weekly U.S. Exports of Finished Motor Gasoline (MBbl/d)
- Weekly U.S. Refiner and Blender Adjusted Net Production of Finished Motor Gasoline (MBbl/d)
- Weekly U.S. Ending Stocks of Total Gasoline (MBbl)
Before we get going on the math, just a note here for readers interested to find the actual data. The data names we used in the points above are the actual column titles in the EIA spreadsheets. You need to be pretty careful which data you pick from the large array of confusing gasoline time series that EIA publish. As we explained before in (Ethanol Gasoline and Refineries) there are additives that go into the gasoline you buy at the pump, including ethanol that is not produced by refiners. We are just looking at refinery produced gasoline or the imported equivalent here.
The weekly apparent demand calculation starts by taking new gasoline supplies that have come into the country as imports and subtracting any gasoline that left as exports. That would be variable A minus B. We then add the result of A-B to the total net new gasoline production by US refiners that is variable C. That result tells us how much gasoline came into the market every day or the net new daily supply.
The next part of the calculation is to determine how much gasoline came into the market by stock drawdown or how much gasoline left the market by being added to stockpiles. That allows us to calculate a daily stock change. To reach this number we need to look at variable D – the weekly ending stocks of gasoline. To determine if stocks went up or down, we subtract last week’s stock value from this week’s number. If stocks went up the result is negative – telling us that an increase in stocks has removed supply from the market so we subtract from our demand calculation. If stocks went down, the result is positive, meaning that the stock drawdown is added to our demand calculation.