Gasoline Demand and Inventories Fall

July 16, 2020 07:34 AM
Oil prices closed at a 4 1/2 -month high
Post-holiday gasoline demand down 13% on the week
Events in Iran could be sabotage
Energy Report

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The Phil Flynn Energy Report 

Imports Dry Up 

Oil prices closed at a 4 1/2 -month high as the impact of OPEC production cuts and an increase in air travel led to a huge crude oil draw and products as well. The market might have gone even higher if it weren’t for the fact that gasoline demand week-over-week disappointed, and OPEC signaled an increase in oil output. Yet regardless of this, the oil market comeback is in good shape, and we will continue to see tightening supplies. A rebound in China’s growth is raising hopes of more global oil demand as its economy, as measured by GDP grew by 3.2% and already has seen its oil demand reach pre-coronavirus levels.

Russian Energy Minister Alexander Novak said that the expected easing of oil output cuts by the OPEC+ group from August to 7.7 million barrels per day is justifiable and in line with the market trends. And he is right. The supply side of the market is tightening, and the market is going to need more oil.

The EIA’s weekly petroleum report said that crude oil imports averaged about 6.4 million barrels per day, 10.2% less than the same 4-week period last year. A significant drop in the Gulf Coast supplies suggests that those Saudi oil tankers are finally emptied out. That led to a 7.56 million barrel drop in crude supply and was enough to offset the fears of more OPEC oil. Gulf Coast crude stocks fell by 7.9 million barrels.

U.S. refinery runs also came in better than expected suggest demand optimism from the refinery sector. The EIA said that  U.S. crude oil refinery inputs averaged 14.3 million barrels per day (BPD) during the week ending July 10, which was 38,000 BPD less than the previous week’s average. Refineries operated at 78.1% of their operable capacity last week. Gasoline production increased last week, averaging 9.1 million BPD. Distillate fuel production increased last week, averaging 4.9 million BPD.

Trades were a little disappointed that gasoline demand dipped a bit but rallied because supply still fell. Gasoline inventories decreased by 3.1 million barrels last week and are about 7% above the 5-year average for this time of year.  Gasoline demand, down 13% on the week to 8.65 million BPD in a post-holiday decline. 

Distillate fuel inventories also fell by  453,000 barrels last week and are about 26% above the 5-year average for this time of year and the drop was led by a come in the soft spot of the sector, jet fuel. Jet fuel demand surged 37%.  While we still or down 30% on jet fuel demand from year-ago levels the uptick a suggests a bottoming out as airlines start to put more planes in the sky

Gasoline demand, in contrast, was down more than 13% on the week at 8.65 million BPD, however, normal post-holiday declines in driving meant that gasoline demand came in just 6% behind year-ago levels, in from 10% the week prior.

Today we have the August WTI Crude Oil futures expiration. We know oil bears are frustrated, and today is their last chance to save their puts and bearish option strategies. It might be tough with all of the issues that Iran has been having an increasing geopolitical risk.

Fox News Reported that 7 boats at a shipyard in Iran caught fire Wednesday, the latest in a slew of mysterious incidents that have led to speculation that an international foe is perpetrating sneak attacks in an attempt to sabotage the embattled regime. The blaze started in the port of Bushehr, in southern Iran, but was contained and no casualties were reported. Iran’s only nuclear power plant is located in Bushehr province. The cause of the fire remains unclear, the report said. Over the last several weeks, explosions at a nuclear enrichment complex, a missile production factory, and a gas pipeline in an apartment building in Tehran have raised eyebrows, as some analysts have speculated that Israel could be a likely aggressor.

Stay tuned! Nat gas report today! We are looking for a 50 billion cubic feet increase. 

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About the Author

Phil Flynn is a senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. Phil is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets.