Opinion: US gasoline surplus eliminated by trade flows

US gasoline surplus resulted in low prices, increased exports

By John Kemp

LONDON, July 20 (Reuters) – The US gasoline surplus has disappeared thanks to a sharp drop in prices which has caused imports from Europe to slow and exports to Latin America and other markets to accelerate since the start of June.

US refineries are processing record volumes of crude while domestic gasoline consumption appears to be holding steady at the same level as 2016 which threatened to flood the market with excess fuel.

But low domestic gasoline prices at the start of the summer driving season have encouraged the diversion of tanker shipments from Europe and incentivised US refiners to boost their own exports.

The United States was a small net exporter of gasoline in the four weeks to July 14, compared with net imports of 450,000 barrels per day (b/d) at the same point in 2016 and 411,000 b/d in 2015.

US gasoline imports are running around 240,000 b/d below year-ago levels, while exports are up by almost 230,000 b/d, according to data from the US Energy Information Administration (tmsnrt.rs/2ueeZwN).

The shift in the net trade position helped clear excess inventories that built up earlier in the year and had been weighing on gasoline prices.

On June 9, US refiners, importers and fuel blenders reported gasoline stocks of 242 million barrels, almost 5 million barrels higher than in 2016 and 28 million barrels over the 10-year average.

Stocks were equivalent to around 26 days of implied domestic consumption compared with 25 days at the same point in 2016.

By July 14, five weeks later, stocks had fallen to 231 million barrels, almost 10 million barrels below 2016 levels and only 15 million barrels above the 10-year average.

Gasoline stocks had been reduced to just 24 days of implied domestic consumption compared with almost 25 in 2016.

Aided by lower prices, the United States has traded its way out of an impending gasoline glut with increased exports to markets in Latin America and European shipments diverted to West Africa and Latin America.

Hedge funds and other money managers seem to have anticipated a fall in gasoline prices needed to clear excess inventories and may have accelerated the rebalancing process.

Hedge funds established a rare net short position in gasoline by early May of almost 21 million barrels and then a similar-sized net short position again by late June.

Since then, hedge fund managers have closed many short positions, as gasoline stocks have fallen to more normal levels.

Hedge fund short positions in US gasoline declined from 70 million barrels in early May and 68 million barrels in late June to just 45 million barrels on July 11.

By July 11, hedge funds had re-established a net long position in US gasoline futures and options equivalent to almost 7 million barrels, anticipating a further increase in prices now that the glut has been cleared.