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Analysis: US gasoline stocks rise as implied demand stumbles

New York — US gasoline inventories climbed 2.2 million barrels last week to 230.94 million barrels despite a drop in production, suggesting lower demand, data released by the Energy Information Administration showed Thursday.

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While inventories drew on the US Atlantic Coast, home of the New York delivery point for the NYMEX RBOB contract, stocks were higher in the rest of the country.

USAC gasoline inventories fell 527,000 barrels to 63.22 million barrels, roughly 1.4% below the five-year average.

USGC stocks climbed 1.25 million barrels to 84.71 million barrels, pushing the surplus to the five-year average to 8.5% from 6.5% the prior week.

US refiners upped crude runs by 189,000 b/d to 16.77 million b/d last week, the EIA data showed. However, US gasoline production edged lower by 20,000 b/d to 9.86 million b/d, with output of jet fuel climbing.

Imports of gasoline fell 263,000 b/d to 1.35 million b/d, but exports climbed 301,000 b/d to 717,000 b/d.

The result was a decline in product supplied, or implied demand, for gasoline of 35,000 b/d to 9.39 million b/d.

While the decline was not steep, the market had been looking for demand to pick up heading into the US Memorial Day weekend.

Thus the US stock build and slip in implied demand could have been perceived as especially bearish considering the current lack of fresh bullish headlines.

The petroleum complex has been fixed on the potentially destructive impacts on refined products demand from the ongoing trade war between the US and China.

Singapore gasoline crack spreads have plunged below the $1/b level for the first time since February, on growing supply from China. Chinese refiners were heard to be increasing exports in response to slower domestic demand growth and an increased export quota.

Evidence of the former was seen Wednesday, when the latest data from China's National Development and Reform Commission showed domestic consumption of gasoline growing 3.2% on year, the slowest growth since April 2018.

Global trade volume is expected to contract this year for the first time since 2009, according to Platts Analytics.

DISTILLATE, CRUDE STOCKS DRAW

The EIA data also showed a draw in US distillate stocks of 1.62 million barrels to 124.8 million barrels.

A draw of 853,000 barrels in combined low and ultra low sulfur diesel stocks on the USAC could have been supportive for the New York-delivered NYMEX ULSD contract, considering inventories at 33.11 million barrels were 11% below the five-year average.

US distillate product supplied jumped 495,000 b/d to 4.28 million b/d last week, the EIA data showed.

US crude inventories fell 282,000 barrels to 476.49 million barrels last week, with builds on the USAC, Midwest and Rocky Mountain regions surpassed by declines on the USGC and US West Coast.

Demand for crude edged higher as refiners upped runs, but the EIA data also showed a 100,000 b/d increase in US production to 12.3 million b/d.

US crude imports slipped 81,000 b/d to 6.86 million b/d, while exports jumped 395,000 b/d to 3.32 million b/d.

A wide Brent/WTI spread should be encouraging crude exports, although that spread has narrowed in recent days. The Brent/WTI spread was trading around $9.88/b midday Thursday, down from $11/b Tuesday.

The arbitrage for Houston WTI into Northwest Europe, Singapore and Northeast Asia remained open Thursday, S&P Global Platts Analytics data showed. However, the arbitrage for Mars crude into Asia was closed.

Low refinery margins in Asia could dampen demand for imported crude, if they remain depressed. However, US grades will remain an alternative to the shortage of Iranian and Venezuelan crudes on the market.

-- Jeff Mower, jeff.mower@spglobal.com

-- Edited by Derek Sands, newsdesk@spglobal.com