Gasoline Glut--Now that prices are up demand is fading

Many have been playing up gasoline demand in 2016.  And it was very strong to start the year.  But it is beginning to look like many were stocking up on cheap gasoline and now that it has risen demand is fading.  Also global supply of gasoline has surged while demand for distillates is soft.  Some have started to point out the gasoline glut in China and the rest of Asia.

Business Insider--Gasoline Glut in China

Indeed yesterdays EIA report foretells soft demand for refined products as refinery inputs plummeted below 2014 and 2015 levels for the week, after a very strong showing in March and April.

psw01 2016-4-27

A more detailed comparison of refinery inputs vs gasoline supplied clearly shows the large surge in gasoline supplied to start 2016.  But it has also fallen off in the last 2 weeks.  The surge in refinery inputs in March can be seen ahead of the gasoline supplied surge in April likely caused by refiners having a surge of orders in March for April delivery.  If we assume a large portion of the additional demand went into storage in preparation of seasonal demand that would mean about 36MM bbl of gasoline is spread around waiting for customer demand.  Given increased demand for gasoline during the US summer, this would still mean enough gasoline is already spread around to cover that increased demand relative to 2015 mid April demand to completely through early July.

Additionally it looks like US refiners have tweaked their processes to increase the output of gasoline vs distillates/diesel to account for increased gasoline demand, weak diesel demand and a glut of diesel in storage.  In the past US refiners were able to reach a ratio gasoline to diesel of 2.3 to 1.  In recent years the ratio has tended to run about 1.9 to 1 in the summer, but last week the ratio was 2.1 to 1.  This means refiners get about 10% more gasoline per barrel of crude.  This would weaken summer demand by up to 10%.   If this were to reach a ratio of 2.3, refiners would get 20% more gasoline.  Going forward if diesel demand remains weak we can easily see refiners lower demand by 10-20% just by adjusting their processes.