New York — NYMEX July RBOB led the oil complex lower Wednesday, plunging 6.68 cents to $1.4327/gal, after US Energy Information Administration data showed a second straight build in gasoline stocks amid low demand for the time of year.
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With summer just around the corner, traders are focusing on the gasoline market, which made EIA's weekly inventory a market mover as demand failed to rebound from a sharp decline the previous week.
Over the last two weeks, implied gasoline demand has averaged 9.293 million b/d, compared with 9.763 million b/d during the two weeks prior to that, and 9.665 million b/d in the same period a year ago.
"The real problem in the market a couple of weeks into June is this gasoline demand story," said John Kilduff, partner at Again Capital.
The RBOB crack fell further Wednesday, although that alone might not be enough to persuade refiners to slow down, said Kilduff.
"Refiners are going to still crank out supply because they're hoping that when schools close people are going to hit the road. That's wishful thinking, but it's what they're going to play for," he said.
"There have been strong employment numbers and a low pump price, which is favorable for refiners, so any business plan would conclude that this should be a good summer, but so far we're not seeing that," he added.
The front-month NYMEX RBOB crack spread against WTI was down $1.08 at $15.44/b Wednesday afternoon, compared with more than $19/b on June 1.
US gasoline stocks increased 2.096 million barrels in the week that ended June 9 to 242.444 million barrels, EIA data showed Wednesday. Analysts surveyed Monday by S&P Global Platts were looking for a draw of 600,000 barrels.
Distillate stocks increased 328,000 barrels last week to 151.416 million barrels, but analysts were looking for a build of 200,000 barrels. That surprise build pulled NYMEX July ULSD down 3.75 cents to $1.4102/gal.
Inventories fell in 14 of 15 weeks through the week that ended May 19, but have since risen by a total of 5.1 million barrels.
CRUDE STOCKS SLIDE 1.661 MIL BARRELS
US crude stocks decreased 1.661 million barrels to 511.546 million barrels in the week that ended June 9. Analysts expected a draw of 2 million barrels.
"If crude oil inventories decline at the expense of refined product inventories increasing, a balanced market hasn't really been achieved," said Jenna Delaney, senior oil analyst at Platts Analytics.
With the size of last week's crude draw missing expectations, crude futures fell Wednesday. ICE July Brent settled $1.72 lower at $47/b.
NYMEX July crude settled $1.73 lower at $44.73/b, off an intraday low of $44.54/b, a low for the front-month contract going back to November 15.
Another aspect of EIA's weekly inventory report that undermined last week's crude draw was the production estimate for the Lower 48 States, which rose 25,000 b/d to 8.84 million b/d.
Output in the Lower 48 States has risen almost non-stop this year, and is now 599,000 b/d higher than at the end of 2016.
Some of that additional production has left the country, but a pick-up in exports has also displaced supply from non-US producers that has struggled to find customers.
The amount of unsold North Sea crude in floating storage stands at around 7.3 million barrels, up from 5 million barrels on June 6, according to cFlow, Platts' trade flow software.
US crude exports increased 165,000 b/d last week to 722,000 b/d.
FED RAISES RATES
The US Dollar Index fell Wednesday to 96.3 at one point, its lowest level so far this year, after US economic data on inflation and retail sales came in weaker-than-expected.
The dollar is seen as having a negative correlation with oil, but that relationship has frayed recently, with both assets on a downward trajectory.
The dollar index pared its decline in the US afternoon when the Federal Reserve's policysetting committee -- as expected -- raised interest rates by 25 basis points and stayed on track for one more rate hike in 2017.
--Geoffrey Craig, firstname.lastname@example.org
--Edited by Keiron Greenhalgh, email@example.com