(Robert Campbell is a Reuters market analyst. The views
expressed are his own)
By Robert Campbell
NEW YORK May 16 This week's U.S. government oil
inventory data have placed a tempting morsel on the trigger of a
big bull trap in the gasoline market. It should be sprung
Persistent declines in U.S. gasoline inventories have
finally eroded the year-on-year surplus in stocks, pushing
supplies to a 1.6 million barrel deficit when compared to the
same week in 2011.
It looks like a signal for fresh buying. Or is it? Examined
more closely, the data show plenty of evidence that this could
be a bad time indeed to go long gasoline.
Take the supply deficit. U.S. gasoline supplies are only
lower than last year due to extra-ordinary tightness in the
geographically isolated West Coast market.
Gasoline stocks in PADD 5 stand at only 25.3 million
barrels, down sharply from last year's reading of 31.8 million
barrels, largely due to a severe refinery problems.
Elsewhere the picture is not so grim. Stocks on the East
Coast are still in surplus when compared with 2011 to the tune
of 2.9 million barrels.
The situation is similar on the Gulf Coast where stocks are
at a 1.8 million barrel surplus.
So the supply standpoint today does not look so bad with the
Memorial Day holiday, the traditional start of the U.S. driving
season, just around the corner.
Indeed, looking forward, the supply situation may continue
to improve. Refinery capacity utilization reached 88.3 percent
last week, the highest reading since September.
That alone suggests gasoline production should rise. Indeed,
runs on the Gulf Coast broke through the 90 percent level last
week. And that is before the big expansion of Motiva's
Port Arthur, Texas refinery comes online later this summer.
EXPORTS NOT THE ANSWER
Indeed, the supply response should be the decisive factor in
the gasoline market this year given demand weakness.
Even the most bullish of commentators can only point to a
moderation in the decline of U.S. gasoline demand as an
improving factor in the market.
This is similar to saying "the cancer is growing more
slowly." It's better news than before but hardly a reason to
Moreover the supply picture seems to suggest that export
demand is not emerging as a game-changer in the gasoline market.
The stability of Gulf Coast gasoline stocks implies that
regional refiners there are coping well with demand.
Contrast that with diesel, where Gulf Coast stocks have
fallen hard this year to multi-year lows.
(Although that trend too may be easing. Gulf Coast
distillate stocks rose 900,000 barrels last week, though remain
in a deep deficit compared to a year ago.)
This year's gasoline market shows some of the limitations of
trading based on weekly data releases.
Extrapolating future trends from a single-point snapshot of
the supply situation is extremely dangerous and tends to ignore
the dynamic supply response that can come from unexpected
corners of the market.
It also downplays the importance of longer-term planning by
For instance refineries have already bought crude oil in
anticipation of higher runs this summer. With crude stocks near
record levels and the Brent market in backwardation, refiners
have little incentive to hold onto stocks.
Refiners have already forecast summer demand, and have laid
in crude supplies to meet their term supply commitments to oil
product retailers as well as any spot trading requirements they
Indeed rising crude oil stocks in a backwardated market,
particularly in the late spring or fall, should probably be best
interpreted as a sell signal on oil products.
Barring a severe economic dislocation refiners will run the
crude they have bought. If profitability is limited, the
drawdown will be slower than planned and will be reflected more
in future crude oil buying patterns than immediate gasoline and
(Editing by Alden Bentley)