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Reimposed restrictions pose risks to US oil demand

Kayrros sees increased driving in all but 3 states

Rising US gasoline inventories pressure prices

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While US gasoline demand continues to recover from April lockdowns, driving fell last week in three states hit hard by rising coronavirus cases, highlighting the ongoing risks to oil demand from reimposed stay-at-home restrictions.

New moves by states and cities to stem rates of infection could further suppress demand for gasoline and other transportation fuels, driving down spot and pump prices.

The latest Kayrros geotracking data found regular driving demand rose in every state last week except for Arizona, Texas and Florida. The rest of the US edged toward recovery and is returning to seasonal trends, said Laila El-Ashmawy, Kayrros' vice president of market strategy.

Kayrros estimates US regular driving demand at 4.21 million gal/d last week, a level not seen since October. It sank to 2.19 million gal/d in the week ended April 10 during multiple state lockdowns.

California's regular driving demand edged up last week but remains 21% below March 13 levels, before its governor imposed a stay-at-home order, Kayrros data showed. Texas driving demand is down 13% from mid-March, and Florida demand is down 8%.

California, Texas and Florida represented about 27% of pre-crisis US gasoline demand, according to the US Energy Information Administration.

US long-haul diesel demand fell for a fourth straight week, but it is nearing December holiday levels, El-Ashmawy said.

Growing stocks

The potential for weaker US gasoline demand comes as inventories are rising.

Total US gasoline stocks rose 1 million barrels in the week ended June 26 to 256.5 million barrels, putting stocks at a 10% surplus to the five-year average. Product supplied, a figure that represents implied demand, fell 15% week on week to at 8.56 million b/d, 11.75% below the five-year average, the most recent EIA data showed. Still, that was up from a 46% deficit in mid-April.

The RBOB crack spread against ICE Brent has risen from the negative levels seen in late March and early April as demand has improved, but cracks remain below year-ago levels on the supply surplus.

The September RBOB crack spread was trading late July 7 at around $9.50/b. At this time last year, the September 2019 RBOB crack was trading around $14/b.

The supply/demand imbalance has also pushed some spot gasoline price differentials lower. In Chicago, differentials for both pipeline CBOB and RBOB saw steep losses July 7, falling 2.75 cents/gal and 2.50 cents/gal to NYMEX RBOB futures minus 7.50 cents/gal and futures plus 5.50 cents/gal, respectively.

That followed a similar decline July 6, when Chicago CBOB fell 1.50 cents/gal and RBOB fell 2.50 cents/gal.

Market sources said they expect differentials to continue moving lower if supply remains elevated.

Prices for gasoline at the pump are the most glaring indication of this reality, with the national average price for mid-grade gasoline a full 56 cents/gal cheaper than this time last year, according to data published by US automotive club AAA.

S&P Global Platts Analytics has slightly raised its outlook for US gasoline demand in the coming months. It sees July demand at 8.25 million b/d, up from an April low of 5.9 million b/d during lockdowns. It expects US gasoline demand to average 8.14 million b/d in 2020 and 9.15 million b/d in 2021.

Platts Analytics projects US diesel demand at 3.6 million b/d in July, up from a low of 3.48 million b/d in April. It sees US diesel demand averaging 3.83 million b/d in 2020 and 4.1 million b/d in 2021.