This week's Global Market Analysis takes a look at the US gasoline market, and how (so far) hurricane season hasn't had as big an impact on demand as previously predicted.
US hurricane season (so far) fails to pack a punch, keeping a lid on gasoline prices
By Jeffrey Bair
The summer is providing confusing signals so far to the US gasoline markets.
Folks are supposed to be heading out to the mountains and beaches. Yet early July saw an unseasonable dip in gasoline demand.
It’s also the season where the commodity trade prepares in advance for hurricanes that can interrupt the flow out of the refinery gates, even for nothing more serious than a loss of power. The prediction this year had been for busy times in the tropics, and markets usually anticipate bad weather in advance.
Yet so far, no storms.
That means the hurricane premium has receded. It’s a grim reality that the destructiveness rushing out of the Gulf of Mexico – or even the potential for it – can improve crack spreads and lift fuel markets.
The 1-2 punch this week of soft demand and calm seas caused CBOB, the main physical barrel across the nation, to dip Monday to a 50-cent-a-gallon discount to Nymex RBOB futures in Gulf Coast trade, according to General Index data. It was easy to dismiss as a one-off, yet three days later on Thursday CBOB found a 40-cent discount to the same basis. Midwest gasoline also landed discounts of more than 50 cents a gallon to futures.
CBOB being divorced from futures like the huge spreads seen across much of the country points to weakness in the refining hub. Supply has been swelling with Gulf Coast refineries running at 97% of capacity through July, according to federal statistics. The supply chain is awash with gasoline.
Cheap CBOB has improved the pipeline arbitrage. Traders were paying an extra 8.25 cents a gallon to get their barrels on the nation’s biggest pipeline, Colonial, to move that gasoline to market as fast as they can.
All this could change soon. Demand, as reflected by how much gasoline is sent to market, has jumped plenty in the past two weeks. Hurricane season will last well into fall. Developments on either market mover could lift CBOB and eliminate those massive spreads.