Hedge funds established largest bullish position in gasoline futures and options since July 2014
By John Kemp
LONDON (Reuters) – U.S. gasoline stocks are rising much faster than normal at the start of the year, threatening to leave refiners struggling to clear an overhang of motor fuel later in the year.
Gasoline stockpiles rose by almost 21 million barrels during the first 27 days of 2017, compared with an average increase of less than 12 million barrels at the same time of year during the previous decade.
Stocks have only risen this fast on one other occasion in the last 10 years, and that was in 2016, when refiners and blenders ended up with a large surplus which lingered through the summer.
Stocks hit a seasonal record of 257 million barrels on Jan. 27, according to an analysis of data from the U.S. Energy Information Administration.
Stocks are now 4 million barrels higher than in 2016 and almost 26 million barrels higher than the 10-year seasonal average.
Stocks are rising faster than normal across the eastern United States but especially on the East Coast and in the Midwest.
East Coast stocks have risen by more than 8 million barrels since the start of the year, almost double the average increase of 4.7 million barrels.
Midwest stocks are also up by 8 million barrels, more than double the average increase of 3 million barrels at this time of year.
Gasoline stocks normally rise throughout January and sometimes into early February as refiners and blenders build reserves ahead of the refinery maintenance season.
But the stock build in 2016 was exceptionally large as healthy gasoline margins encouraged refiners to process an unusually large volume of crude through the winter months.
Something similar appears to be happening in 2017 with refineries processing much more crude than normal despite unusual stock levels.
Refinery throughput has been running around 200,000 to 400,000 barrels per day higher than in 2016 since the turn of the year.
Refining margins have generally been higher than during the winter of 2015/16 which has encouraged refineries to increase their processing (“Key commodity prices and differentials”, Valero, Jan 2017).
Hedge funds have established the largest bullish position in gasoline futures and options since July 2014 in anticipation that prices will rise.
The forthcoming maintenance season should lower refinery throughput and start cutting reported stock levels in the next 1-2 weeks. If maintenance is longer and heavier than normal it could help eliminate excess inventories.
But the build up of stockpiles and concentration of hedge fund positions will eventually have to be unwound at some point and could temper any further rise in gasoline margins.