Spend Matters welcomes another guest post from James Hutchings of Mintec.
As the summer continues, the demand for gasoline has heated up. Gasoline consumption usually increases over the summer as the driving season gets into full swing, but this year has seen an even more pronounced rise than usual with demand up by 10% from May to the start of July, to 9.3m barrels per day (bbl/d).
However, this increase in demand has not and is not likely to lead to a substantial rise in prices this summer both due to the high stocks levels of gasoline and also recent increases in refinery activity.
Gasoline inventories reached 223m bbl/d by the end of July, the highest level for this time of year since 1992. Also, despite the recent rise in consumption, average consumption for 2013 has been almost identical to last year, around 0.4m bbl/d below the five-year average.
From March 2012 through the end of June 2013, commercial crude oil inventories had been above the five-year average. Stocks then fell by a record 27m barrels in three weeks but for the year-to-date remains 6% above last year and 11% above the five-year average. The sharp drop in inventories was caused by three main reasons. Firstly, demand from refineries rose; secondly, crude oil imports have fallen; and thirdly, there is an expectation in the market that crude oil prices are set to fall in the coming months, encouraging the sales of crude oil.
Crude oil prices are likely to drop in the second half of the year as production recovers after a brief drop due to June flooding in Alaska.
Crude oil demand for refineries peaked at 16.2m bbl/d in the week ending July 12, the highest level since 2005. It also marks a 2.2m bbl/d rise from the low point for 2013, seen in March. To meet this demand, refinery utilization rates increased and reached a peak of 92.8% by July 12, up from a minimum this year of 81% in March, as production has recovered very strongly from spring maintenance periods and new refinery capacity has also come online.
So whilst we have seen a sharp increase in gasoline consumption, the high stock levels and the high level of refinery activity have so far limited any increase in gas prices. With domestic crude oil production expected to continue to increase into next year, this is likely to keep a lid on gas prices in the near future.