Fuel Marketer Intelligence: Supply Chain Dynamics to Retail Fuel Prices
By Brian Milne
More than a month since Hurricane Harvey’s landfall along the Texas coastline near Corpus Christi that was followed by a string of deadly hurricanes in September, wholesale gasoline prices began the fourth quarter lower as a supply recovery since the storms was joined by seasonal and technical pressure.
There are still refineries in Houston, Beaumont and Port Arthur, Texas, with units down, while Hurricane Maria disrupted crude deliveries to two Mid-Atlantic refineries in late September, forcing one into hot circulation without processing feedstock and the other to cut runs due to a lack of crude oil. At 88.6% of utilization, U.S. refineries remained below the five-year average run rate for the fourth consecutive week through Sept.22, according to the latest data from the Energy Information Administration, although well above the 77.7% utilization rate averaged during the first week of September.
At 23 days of forward supply cover during the week ended Sept. 22, gasoline availability improved from a two-year low of 22.7 days week prior, with gasoline inventory building nationally for the first time since the beginning of August; up 1.1 million bbl to 217.3 million bbl.
The supply build was due to a surge in gasoline imports during the third week of September. US gasoline imports topped 1.0 million bpd for just the second time in 2017, and only the third time in nearly 4-1/2 years, as the price spike in response to hurricane-led supply disruptions triggered a wave of product to be shipped to U.S. ports.
And while the US retail gasoline price average jumped to a better than two-year high at $2.685 gallon on September 11 according to the EIA’s weekly survey, gasoline demand remained strong, having dipped only slightly below the five-year average during the week ended September 1. It was late February that gasoline supplied to market last slipped below the five-year average, EIA data shows, and while 1.8% below year ago cumulatively through mid-September at 9.284 million bpd, implied gasoline demand averaged 0.6% higher year-on-year at 9.436 million bpd during the four weeks through Sept. 22.
Noncommercial traders, also known as speculators since they are not using a futures contract to hedge a position in the underlying physical market, had moved to a better than eight-month high net-long position in September during a time of year when noncommercial traders are typically liquidating long positions. For six straight weeks through September 26, data from the Commodity Futures Trading Commission shows noncommercial traders increasing their net-long position, a trade made with the expectation that prices would move higher over time.
The seasonal backwardation in the forward curve for New York Mercantile Exchange RBOB futures was nearly erased with the expiration of the October contract on Sept. 29, which expired at $1.6065 gallon. Backwardation refers to a market structure in which the futures contract closest to delivery trades at a premium to deferred delivery; a signal to move supply directly to market instead of placing in storage.
As the November contract assumed the nearest delivered position during the first session of the fourth quarter, settling at $1.5553 gallon, it left a modest seasonal gap on the spot continuous chart. Typically, this seasonal gap would have been created with the rollover from September to October futures contracts.
EIA’s survey shows the average retail price for all formulations of regular grade gasoline sold in the United States declined for the third straight week through Oct. 2 to $2.565 gallon. The national average should continue its seasonal decline, although higher crude prices during the fourth quarter could disrupt this outlook.
Brian Milne is an editor and product manager with DTN, the independent, trusted source of actionable insights for 600,000 customers focused on feeding, protecting, and fueling the world. Customer-centric and employee-driven, the company focuses on empowering agriculture, oil & gas, trading, and weather-sensitive industries through continuous, leading-edge innovation. Based in Minneapolis and Omaha, Nebraska, DTN is owned by TBG, a private century-old investment holding company headquartered in Zurich.
