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US gasoline stocks move sharply lower as demand hits all-time high

Highlights

Gasoline stocks fall 6.08 million barrels

Implied demand hits 10.04 million b/d

Crude stocks draw 6.87 million barrels

US gasoline stocks moved sharply lower in the week ended July 2 as implied demand surged to an all-time high ahead of the July 4 holiday weekend, US Energy Information Administration data showed July 8.

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Total US gasoline inventories declined 6.08 million barrels during the week ended July 2 to 235.5 million barrels, EIA data showed, leaving inventories 1.5% behind the five-year average, opening the widest deficit since late May. It was the largest one-week draw-down in gasoline stocks since the week ended March 5.

The EIA-reported inventory draw was more than double market expectations and sent NYMEX RBOB futures sharply higher. The front-month August RBOB contract settled up 4.92 cents at $2.2552/gal.

Gasoline stocks tightened in all regions except the Midwest, which saw an 840,000-barrel inventory bump that pushed regional stockpiles to 51.01 million barrels, a 15-week high.

The draw was concentrated on the US Gulf Coast, where stocks moved down 4.71 million barrels over the period to a 13-week low 80.48 million barrels, and on the US Atlantic Coast, which saw stocks draw 1.67 million barrels to 69.03 million barrels.

Total product supplied for gasoline, EIA's proxy for demand, was up more than 9% on the week to 10.04 million b/d, an all-time high in records dating back to 1991 and the first time ever above 10 million b/d.

Notably the EIA's implied demand figure shows the disappearance of product from primary sources, and not end-user demand. Hence the significant rise in implied demand likely represents stockpiling at racks to meet projected travel demand over the long July 4 holiday weekend, which fell outside of the EIA reporting period.

Still, Apple Mobility data shows US driving activity averaged 164% of the January 2020 baseline last week, up more than 2 percentage points from the week prior and a fresh record high for the index.

The draw comes despite weekly gasoline production climbing more than 10% to 10.55 million b/d - the highest since the week ended Aug. 23, 2019.

Total US distillate stocks climbed 1.62 million barrels to 138.69 million barrels. NYMEX August ULSD settled 3.13 cents higher at $2.1204/gal.

Refinery crude demand slows

Refiners appear to be maximizing their gasoline production to take advantage of strong cracks even as broadly weaker whole barrel margins presented headwinds to refinery crude demand and utilization last week.

Total net crude inputs slid 1% to 16.12 million b/d last week and fell more than 3% behind the five-year average. Refinery utilization saw a 0.7 percentage point slide to 92.2% of total capacity but was still more than 1% above the five-year average.

Weaker run rates come as Platts Analytics data shows US Gulf Coast WTI MEH cracking margins averaged $11.80/b in the five-days ended July 1, in slightly from $11.86/b seen during the week prior. But the unleaded 87 crack against WTI MEH averaged $17.23/b over the same period, up 7 cents from $17.15/b averaged during June.

Crude draws extend amid static production

Total US commercial crude stocks declined 6.87 million barrels to 445.48 million barrels, EIA said, leaving inventories at the lowest since late February 2020 and more than 7% behind the five-year average.

The draw marks a seventh consecutive week of lower inventories that have seen stocks contract by more than 40 million barrels since mid-May.

NYMEX August WTI settled up 74 cents at $72.94/b and ICE September Brent climbed 74 cents to finish at $74.17/b.

Relatively strong refinery demand compared with static production levels continues to be the primary driver for the downward stock pressure.

Investor demand for capital discipline that prioritizes shareholder returns over production growth has so far kept US oil production from significantly responding to this year's oil price rally. NYMEX WTI futures have climbed nearly 40% from January to July, while output during the week ended July 2 was up just 2% from January levels at 11.3 million b/d.

However EIA, in its latest Short-Term Energy Outlook released July 7, said drilling activity will likely start to pick up by the end of the year and climb more steadily into 2022 if WTI prices remain above $60/b, a level that has signaled robust activity among US upstream operators in the past.

EIA expects US crude production to average 11.2 million b/d in the third quarter before rising more steadily, from 11.3 million b/d in Q4 2021 to 12.2 million b/d in Q4 2022.