Recent EIA releases have been generally supportive of oil market bulls, as despite continued high US crude production and refinery utilization, clean product stocks have declined. The understandable assumption underlying this sentiment is that US consumer demand is driving the decline. Ahead of this week’s EIA release, Navarik Data instead urges some caution, as recovering exports may also have contributed to recent declines in PADD 5 but not necessarily in PADD 3. Any expectations of widespread demand growth should therefore consider regional dynamics.

In PADD 5, gasoline production is still trending high, having been above-average and above-historical levels (Figure 1) for most of June and July. All else being equal, this led to a brief relative bump in gasoline stocks (Figure 2). In PADD 3, production has been within historical levels, but slightly above-average (Figure 3). As with PADD 5, this appears to have built up in storage (Figure 4), but also like PADD 5, PADD 3 stocks has recently dipped. But the mechanism for each appears to be different when looking at Navarik’s validated PADD 5 and PADD 3 marine exports (Figure 5 and 6). There, we see that PADD 5’s gasoline exports have recovered and are rising towards 2016 levels, while in PADD 3 gasoline exports have fallen and flatlined. Any recovering against 2016 levels is owing to declines in 2016 rather than increases in 2017. In fact, Navarik’s unique forward-looking data set suggests that these diverging trends are likely to continue.

On a national level, therefore, it might be hard to assign any certainty to the overall significance of the gasoline stock declines. PADD 3 is a major export region; a stock draw there despite an export decline is a strongly bullish indicator. PADD 5, however, is a major domestic consumption region; the possibility that stock draws there were due to exports rather than local demand should give some pause. If this week’s EIA clean product stocks continue to decline nationwide, the question is perhaps moot. But if the numbers disappoint (or if they differ), investors may have to revisit the question of which regional trend is more representative.

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