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US mileage and oil-price patterns

Sam Fletcher
OGJ Senior Writer

The Department of Transportation said total miles driven in the US during August were up 0.7% from the same period in 2008, following a 2.3% gain in July.

Total miles driven this year through August equaled mileage driven in the same 8-month period in 2008, DOT said. However, Jacques H. Rousseau, an analyst at Soleil-Back Bay Research, noted, “It is important to remember that 2008 was a leap year and included an extra day in February, so on a daily basis, miles driven are up 0.5% year-to-date.”

Still, said Olivier Jakob at Petromatrix, Zug, Switzerland, “What is more worrying is that August is declining vs. July, and this goes against the normal seasonal trend.” He said, “Apart from the low levels of 2008, we have to go back to 2003 to find a comparable low Vehicles Miles Traveled during August.”

As crude prices hit a 12-month high of $82/bbl on the New York market Oct. 21, Jakob said, “Change in driving patterns is a multiweek rather than an overnight process, and the vehicles miles data shows that the US driving patterns did not start to change in the summer of 2008 when crude was at $147/bbl but in the fourth quarter of 2007 when crude prices were starting to break above $80/bbl. They started to increase again only after a few months of crude oil at sub-$50/bbl.”

Hence, he said, “We have to start being cautious on the forward outlook for US gasoline demand on a price elasticity basis. With the high level of stocks and poor refining margins, [US] imports of gasoline have been sharply reduced; but with the widening premium of West Texas Intermediate to North Sea Brent, the arbitrage economics on gasoline are starting to improve while the US cracks should at the same time sponsor some incremental supplies.”

Meanwhile, data released by the Association of American Railroads for the week ended Oct. 17 showed North American rail volume to be still 18.6% below last year (US down 15.4%, Canada down 10.4%, Mexico down 9.5%). “These year-on-year comparisons should start to improve due to the base effect of the end of October 2008 collapse, but they are nonetheless proof of a recovery that is only timid and in that environment we will have to start watching for any negative price impact on oil demand if the [recent oil price] rally was to continue,” Jakob said.

US inventories
The Energy Information Administration said commercial US inventories of crude increased by 1.3 million bbl to 339.1 million bbl in the week ended Oct. 16—the latest period at presstime last week. Gasoline stocks fell 2.3 million bbl to 206.9 million bbl. Distillate fuel inventories decreased by 800,000 bbl to 169.9 million bbl. Imports of crude into the US dipped by 32,000 b/d to 8.7 million b/d that week. In the 4 weeks through Oct. 16, crude imports were 310,000 b/d below the same period in 2008. Input of crude into US refineries declined 27,000 b/d to 14.1 million b/d in the final week with units operating at 81.1% of capacity. Gasoline production was virtually unchanged at 8.5 million b/d, but distillate fuel production increased slightly to 3.9 million b/d.

Rousseau said, “Refined product inventories (gasoline plus distillate plus jet fuel) fell 3.3 million bbl (0.8%)…due to lower supply. Refiners continued to operate at very low levels because of weak refining margins, and imports fell to their lowest level of the year. After showing signs of improvement the last 3 weeks, gasoline demand dropped to under 9 million b/d, according to the EIA. Inventories of distillate remain very high heading into winter.” He foresees weak earnings in the refining sector into 2010.

Meanwhile, Jakob said open interest in reformulated blend stock for oxygenate blending (RBOB) futures continues to increase, reaching the previous peak levels of last May. “Gasoline demand on the 4-week average [through Oct. 16] is 4.2% higher than a year ago, but we need to point to some flags on demand. Comparing recent demand to a year ago has been made somewhat difficult given the hurricane disruptions last year, but overall demand on the 4-week average is now even slightly lower than a year ago with a continued deficit of distillate demand,” he said.

In the rest of the world, German consumer stocks of heating oil remain at multiyear highs and it will take an extreme winter to make room for the stocks of distillates “that have been sent from Asia to float in European waters,” Jakob said.

(Online Oct. 26, 2009; author’s e-mail: samf@ogjonline.com)


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