Summer Demand Has Yet to Dent Gasoline Inventory, Will It?

US Gasoline Inventory, YoY

Data Source:  EIA

psw01 2016-1-13

US gasoline inventories are 10% over the same time last year or about 22.3MM bbl over last years storage level.  It is no wonder gasoline crack spreads are about $10 lower than this time last year.  The fact that inventory levels appear to be flattening and even surged last week is a warning that gasoline demand may not be nearly as high this summer as many expected early on.  It has become my feeling that many stockpiled gasoline at lower prices this late winter and spring which could have lasting affects on early summer demand.  If refiners have been running at higher rates with the expectation of huge demand based on the huge spring demand they could be in real trouble if they don't slow down soon as crack spreads are already poor and could get a lot worse this fall when demand lags if they continue to carry this inventory.  I'm betting they will be running at much lower utilization levels than expected for this time of year putting heavy pressure on crude demand.

http://griztrading.blogspot.com/2016/05/major-us-refinery-slowdown-on-way.html

Rather than seeing a large surge in summer gasoline demand we could actually see much softer demand as we did in 2014, if gasoline was indeed stockpiled this spring as the unexplained exceptionally high gasoline demand suggests.

US Gasoline Supplied, YoY

Data Source:  EIA

psw01 2016-4-27

I'm shorting crude oil with the expectation that the power is in the hands of the refiners with high inventories on both sides of their process and really unlimited supplies yet worldwide.  I find it likely they will slowdown which will support gasoline somewhat, but will crush crude.  They could easily manage to create gasoline draws and crude builds.  The situation with gasoline and distillates implies refiners could slow as much as 10% to draw refined inventories within historical seasonal norms.  That would be 1.5MM bbl day which would create 7MM+ bbl/day excess crude.  So we could be looking at 3.5MM-7MM barrel builds in crude this summer.