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Column: US gasoline and diesel markets look tight

gasoline and diesel

Despite record runs, refineries are struggling to meet gasoline and diesel demand from US and Latin American customers. BP photo.

US gasoline and diesel stocks fall despite record refinery runs

By John Kemp

LONDON, Nov 9 – US stocks of gasoline and diesel continue to fall, despite record refinery runs, in a sign of strong demand at home and in export markets.

U.S. refineries processed a seasonal record 16.3 million barrels per day (b/d) of crude in the week to Nov. 3, according to data published by the US Energy Information Administration.

Refinery runs were 600,000 b/d more than in 2016 and 1.5 million b/d more than the 10-year seasonal average, as they have most weeks since April, with a brief interruption caused by Hurricane Harvey.

Despite record runs, refineries are struggling to meet strong demand from gasoline and diesel in the United States and customers in Latin America.

Gasoline consumption is being boosted by relatively cheap fuel, strong economic growth, job creation, rising traffic volumes and the purchase of larger vehicles.

Diesel is being driven by the rise in industrial activity and freight movements, as well as increases in oil and gas drilling, which relies on off-grid diesel-electric generators.

US gasoline stocks fell by 3.3 million barrels compared with the prior week, while distillate stocks were down by 3.4 million barrels.

Gasoline stocks have fallen by 27 million barrels since the start of the year, the biggest draw for over a decade, and are now 12 million below year-ago levels.

Distillate stocks have fallen by 37 million barrels so far in 2017, compared with a 10-year average of just 4 million, and are now 24 million below the same point in 2016.

Gasoline and distillate stocks have been tightening consistently most weeks since March, and now appear tight given underlying growth in demand in domestic and in export markets.

Stocks of both fuels were under pressure even before Hurricane Harvey caused widespread disruption to the major Gulf Coast refineries in late August and September.

Domestic gasoline consumption has been running at record levels most weeks since April, while exports, mostly to Latin America, have remained strong, and spiked higher in recent weeks.

Distillate consumption at home has been more mixed but fairly strong and exports have been running at record levels.

Stocks of both fuels are now becoming uncomfortably low from an operational perspective once inventories are adjusted for rising demand.

If winter temperatures are in line with the long-term average, heating oil consumption will be significantly higher than last winter, but if the winter proves colder than normal, stocks could feel tight.

Gasoline and diesel prices have been rising even faster than crude to encourage refiners to maximise crude processing.

Hedge funds and other money managers have amassed a record bullish position in US heating oil and a near-record one in gasoline anticipating prices will rise even further.

With refining margins rising steadily, refiners will try to arrest and reverse the decline in fuel inventories by continuing to run at record rates through the end of the year, which should continue to tighten the crude oil market, at least until the end of 2017.

Related columns:

Hedge funds go all-in on oil”, Reuters, Nov. 6

Booming oil demand is eroding inventories”, Reuters, Nov. 2

U.S. refiners struggle to keep up with demand for distillates”, Oct. 5

(Editing by Edmund Blair)

John Kemp is a Reuters market analyst. The views expressed are his own.

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