Monday, April 24, 2017

U.S. Summer Gasoline Off to Slow Start; Course for Season May Change

The U.S. summer gasoline market is off to a slow start, based on the current prices, demand and supply fundamentals so far.

It is noted that while current gasoline market appears bearish, it is relatively more favorable compared with the same time period a year ago when the market was suppressed by an oversupply.

The current U.S. gasoline market reflects the prevailing supply overwhelming demand. The bearish market sentiment, at least for now, is backed up by a surprising increase in the weekly gasoline stocks in mid-April when stocks should start falling based on the historical trend. However, the slow start may not dictate the tone for the rest of the summer season as peak demand later in July-August could clean up the "oversupply."

The NYMEX front-month RBOB price spread was at a slight contango of about 10pts/gal, narrowing from about minus 50pts seen earlier this week. For the last three years, the NYMEX RBOB front-month gap was at a contango in mid-April, reflecting a supply overwhelming demand scenario. In mid-April 2015, the front-month spread was at a 4ct backwardation.

The Northeast gasoline market switched to lower-RVP summer grade from higher-RVP winter gasoline in mid-April.

"The market normally sees a stockbuilding trend in winter and spring in preparation for the peak summer demand season, but the problem is a stockbuild in early summer from already high inventory," a trader said, pointing to the blip in higher U.S. gasoline stocks last week.

U.S. gasoline inventory for the week ended April 14 rose by 1.5 million bbl from the previous week, according to the Energy Information Administration. For the past few years, April gasoline stock data had typically shown a falling trend. It remains to be seen if U.S. gasoline stocks will continue to build for the rest of April.

Traders noted that the rising stocks were attributed to higher domestic gasoline output and strong import flow.

Gasoline imports for the week ended April 14 jumped to 843,000 b/d, the highest so far this year, according to EIA.

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