Energy Department Models To Blame For December Gasoline Demand Drop

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Includes: BNO, DBO, DNO, DTO, DWTI, OIL, OILK, OILX, OLEM, OLO, SCO, SZO, UCO, USL, USO, UWTI
by: Robert Boslego

Summary

EIA has been reporting surprising drops in gasoline demand in weekly stats.

December actuals show 1.8% year-over-year gain.

EIA models to blame.

Nonetheless, glut exists in crude oil and gasoline stocks.

Likely to cause slower demand for crude at refineries.

Gasoline demand in the United States was reportedly down 6.1 % in the year to date, according to the Energy Information Administration (EIA). This was a surprising development which began in December.

The EIA just released its monthly data for December. That data is considered much more accurate because it is based on survey information.

At first, I had figured the EIA may have been misclassifying some domestic demand as exports. That would make domestic demand look lower.

Based on the monthly data, demand averaged 9.310 million barrels per day, up 1.8% year over year. That figure is 369,000 b/d higher than the interpolated value of the weekly statistics:

Week Ending

Demand

No. of Days Total

Dec 02, 2016

8757

2

17514

Dec 09, 2016

8874

7

62118

Dec 16, 2016

9269

7

64883

Dec 23, 2016

9278

7

64946

Dec 30, 2016

8465

7

59255

Jan 06, 2017

8470

1

8470

31

277186

Average

8941

I have been showing how the EIA's weekly estimates have deviated from the final monthly figures, but this disparity is higher than any of those. And so the large slump in demand in 2017 YTD may have largely been due to a continued estimation flaw by the EIA.

The EIA had reported that U.S. summer gasoline consumption had set a new record high. Based on its latest Short-Term Energy Outlook, it expects gasoline demand to average 9.29 million barrels per day in 2017. That is the same as in 2016.

Conclusions

The surprising drop in gasoline demand appears to be largely due to EIA model errors. However, gasoline stocks remain near record high levels.

This has resulted in a glut of gasoline inventories. As a result, U.S. refinery utilization will probably stay lower for longer to ease the problem, thereby reducing the demand for crude at U.S. refineries in the weeks ahead. Such a development is likely to worsen the glut of crude oil stocks, which are at record high levels.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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