By Brian Milne, Energy Editor for Schneider Electric
Implied gasoline demand, which refers to gasoline supplied to the primary wholesale market, topped the five-year average during the third week of March for just the third time this year, with apparent demand at 9.0 million bpd for the first time in 2014 reports the Energy Information Administration.
Climbing demand follows a tough start to 2014 because of brutal weather conditions, lowering the consumption rate more than usual during the early weeks this year when demand is typically capped by winter weather. The ascent in the demand rate since mid-February, which evened up the implied consumption rate so far this year with 2013 despite this year’s slow start, comes alongside increasing evidence the U.S. economy is in good shape and expanding.
Gasoline supply in the U.S. has followed its seasonal tendency, with inventory drawn down for five consecutive weeks and counting after building late in 2013 and early this year ahead of seasonal refinery maintenance. Refiners build up supply ahead of seasonal maintenance, which is ongoing now, and draw down that inventory to meet contractual obligations. The spring refinery season coincides with the switch to lower Reid vapor pressure gasoline, which is more costly to produce.
EIA data shows domestic gasoline supply deepened its decline below the five-year average during the week-ended March 21 to 1.3% at 217.2 million bbl. U.S. gasoline supply is now at the lowest point since late November 2013, with the drop in inventory lending upside price support for the New York Mercantile Exchange Reformulated Blendstock for Oxygenate Blending futures contract.
The NYMEX RBOB futures contract with nearest delivery traded at $3.0538 gallon on March 3, the first day that the April contract rolled into the front month slot, which was the highest trade since late August 2013. The April contract signaled the seasonal transition to greater gasoline demand, with the early month high the high for March, too. The RBOB contract dropped to a $2.8521 low March 20, and is trading near $2.90 gallon on the last day of March. The contract is modestly backwardated, which refers to a market in which near-term supply is priced at a premium to deferred delivery as the April contract is set to expire.
The current market suggests ongoing gains in the retail average as we head into April, with the advance likely to remain steady. The EIA last reported their national retail average for gasoline at a $3.549 gallon six-and-a-half month high for the week-ended March 24, which is down 13.1cts from a year ago.
Wholesale costs were mostly higher across the country in major metropolitan regions during the week ended this last day of March, which should continue the upward trend in retail prices.
About the author
Brian L. Milne is the Energy Editor for Schneider Electric—a global specialist in energy management. Milne has been focused on the energy industry for 18 years as an analyst, journalist and editor. He can be reached at [email protected].