January 7, 2016 / 3:25 PM / 2 years ago

COLUMN-Don't be fooled by year-end rise in U.S. gasoline stocks: Kemp

6 Min Read

(John Kemp is a Reuters market analyst. The views expressed are his own)

* Chart 1: tmsnrt.rs/1mHXpdq

* Chart 2: tmsnrt.rs/1mHXtd7

* Chart 3: tmsnrt.rs/1mHXuhk

* Chart 4: tmsnrt.rs/1VMv8i9

By John Kemp

LONDON, Jan 7 (Reuters) - The 10.6 million barrel jump in U.S. gasoline stocks last week, reported by the Energy Information Administration on Wednesday, sent gasoline futures tumbling 4 percent and intensified the selloff in oil prices.

Estimated gasoline consumption was also down 1.2 million barrels per day (bpd), over 13 percent, compared with the prior week, adding to market alarm about the health of fuel demand.

But most of the increase in stockpiles and apparent drop in fuel consumption was likely due to year-end seasonal quirks rather a sign of slackening consumption.

The latest data on gasoline consumption, production and stocks are for the week ending on Friday Jan. 1 and straddle year-end.

In the previous five years, from 2010/11 to 2014/15, gasoline stocks increased by an average of more than 6 million barrels over the year end period, with increases ranging from 3.6 million to 8.1 million barrels.

Estimated consumption declined by an average of around 500,000 bpd between the last week of the old year and the first week of the new, ranging from a decline of 34,000 bpd to as much as 805,000 bpd.

The reported decline in consumption and increase in stockpiles last week was somewhat larger than usual but broadly in line with the seasonal pattern.

Blending Components

Gasoline stocks reported by the EIA include both finished motor gasoline and unfinished gasoline blending components which must be blended with ethanol before sale to motorists.

Blending components include reformulated blendstock for oxygenate blending (RBOB), conventional blendstock for oxygenate blending (CBOB) and gasoline treated as blendstock (GTAB).

In recent years, refiners have produced mostly blending components which are sold to terminals in local markets for blending rather than finished motor gasoline.

Ethanol absorbs water, which can cause problems with fuel quality, so gasoline is normally stored and transported by pipeline as blendstock and then blended with ethanol in local markets shortly before to sale.

Gasoline blending components accounted for 203 million barrels, more than 87 percent of the total gasoline stockpile reported last week, compared with just 29 million barrels of finished gasoline.

Blending components also accounted for four-fifths of the increase in stocks last week, increasing by 8.9 million barrels, compared with an increase of just 1.6 million barrels in finished gasoline stockpiles.

The rise in reported stocks was therefore really a rise in the amount of gasoline held by refiners and especially blenders prior to blending, and stocks of blending components typically increase sharply over year-end.

In the previous five years, stocks of blending components increased by an average of between 6.7 and 8.0 million barrels in the week straddling the old year and the new, with increases ranging from 3.2 million to 10.0 million barrels.

The reported increase in gasoline blendstocks last week was therefore in line with normal movements at this time of year.

Delayed Ethanol Blending

In the last couple of weeks of the old year and the first couple of weeks of the new one, refiners and blenders delay blending in the ethanol and increase their inventory of blendstocks.

The result is a big drop in the "net input" of gasoline blending components at refineries and blending terminals during the final two weeks of the old year and the first two weeks of the new one. It is followed by a sharp rise in net input later in January as blending resumes (tmsnrt.rs/1mHXpdq).

There is a corresponding increase in stocks of blending components at the end of old year and the beginning of the new one, and a draw down later in January when blending ramps up (tmsnrt.rs/1mHXtd7).

Production of finished gasoline tends to drop sharply over the year-end period as the blending of components to make finished gasoline is delayed (tmsnrt.rs/1mHXuhk).

Finally, there is a big drop in reported gasoline consumption during the final couple of weeks of the old year and the first couple of weeks of the new one, followed by an increase later in January.

EIA does not measure gasoline consumption directly but rather estimates it from the amount of gasoline that disappears from the reporting system.

Estimated gasoline consumption ("gasoline supplied to the domestic market") is calculated from gasoline production plus imports minus exports minus the change in stocks.

Because gasoline stockpiles tend to rise over the year-end period, estimated consumption tends to fall.

On average, estimated consumption has fallen by almost 650,000 bpd between the third week in December and the second week in January over the last five years (tmsnrt.rs/1VMv8i9).

The decline in estimated consumption has ranged from as little as 288,000 bpd in 2012/13 to as much as 1.2 million bpd in 2013/14. Last week's reported decline of 1.2 million bpd is within the normal seasonal range.

All or almost all of the large changes in gasoline production, consumption and stocks reported last week can be explained by seasonal changes rather than any decline in demand. (Editing by David Evans)

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