U.S. petroleum inventories surged last week, led by a big rise in gasoline, but it was probably attributable to the timing of transfers to retailers rather than evidence of weak consumption at the start of the driving season.
Total inventories of crude and products jumped by 14 million barrels in the seven days to June 4, the largest increase for six months, and in the 98th percentile for all weeks since the start of 1990.
Gasoline inventories soared by 7 million barrels, the largest increase for more than a year, since the first wave of the coronavirus epidemic was raging in April 2020, and in the 98th percentile since 1990.
Gasoline stocks hit 241 million barrels, still only slightly above the pre-epidemic five-year seasonal average of 234 million barrels (https://tmsnrt.rs/3gsT0cp).
The jump in stocks was explained by a corresponding decline in the volume of products supplied to the domestic market, according to estimates prepared by the U.S. Energy Information Administration.
The total volume of products supplied fell by 10 million barrels from the previous week, with gasoline alone down by 5 million barrels (“Weekly petroleum status report”, EIA, June 9).
The volume of gasoline supplied is volatile from one week to the next, with a standard deviation of about 4%, which is equivalent to 2.7 million barrels of fuel per week.
Much of the increase last week can therefore be explained by the normal week-to-week noisiness in the time series and large increases or decreases are often reversed the following week.
Product supplied is estimated as a residual from survey data on production, imports, exports, and inventories, so errors in individual items, or timing differences in reporting, create short-term fluctuations, which self-correct in subsequent weeks.
“Product supplied” is often used as a proxy for “product consumed”, or in ordinary language “fuel used”, which is essentially correct in the medium and long-run, but there are important differences in the short run.
The product supplied concept captures when fuels are transferred from the primary supply chain into the secondary system, not when they are purchased by private motorists let alone used.
The point of measurement is when fuels are sent from refineries, tank farms, pipelines and major blending terminals to smaller wholesalers and retailers, not when they are dispensed at fuel pumps.
Much of the noisiness in the series owes to timing differences about when fuel is pulled from the primary system into the secondary system rather than changes in consumption itself.
Volatility can be induced by extreme weather such as hurricanes, storms and floods which impact deliveries; pipeline disruptions and port closures; and calendar events such as the timing of public holidays.
In the most recent week, the volume of gasoline supplied is likely to have been distorted by the Memorial Day public holiday, which fell on the latest possible date this year, complicating comparisons with prior years.
Retailers and motorists both adjust their stock levels to anticipate unusual driving patterns caused by public holidays, leading to short-term inventory accumulation and drawdowns.
Most analysts therefore average product supplied over four weeks to smooth out some of the short-term fluctuations and provide a more accurate consumption signal.
Four-week average gasoline supplied has been climbing slowly but steadily over the last few months and is now running at 9.1 million barrels per day (bpd), compared with 9.4-9.5 million bpd at the same point in 2019.
In the run up to Memorial Day, retail gasoline prices climbed to their highest for six years, which is also likely to have affected motorists’ decisions about filling tanks and retailers’ decisions about stocking levels.
The result was an exceptionally sharp slowdown in transfers to the secondary supply chain and big build of stocks in the primary supply system last week, but which is likely to be substantially reversed over this week and next.
Source: Reuters (Editing by Mark Potter)
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