Tropical Storm Cindy shutting down as much as one-sixth of the US Gulf Coast offshore oil production could well have been expected to lead to a decline in US crude inventories, but the decline in US gasoline inventories came as a surprise to many. As the storm was weaker by the time it made landfall, it made a much more minor disruption on refinery operations; a decrease in PADD 3 refinery utilization was met with a corresponding increase in finished motor gasoline production. This suggests that the draw on stocks is explained by either increased exports abroad or increased local demand.
Navarik Data confirms that there was no perceptible increase in marine exports of gasoline out of PADD 3. Given the storm came from the south and headed north, directly across the Gulf of Mexico towards the main export regions of East Texas and Louisiana, routes both south and west (through the Yucatan Channel and onwards to the Panama Canal) as well as north and east (through the Florida Straits and out to the Atlantic) were subjected to Cindy’s effects. However, when we compare the volumes shipped through these routes before and after the storm, we see that although shippers may have substituted pushing barrels out the Atlantic for shipping them through the Canal as the storm approached shore and cut off the latter route, the net effect on overall export volumes was negligible. Moreover, this drop cannot be strictly attributed to Cindy since Colin, a storm of equivalent intensity with a similar route and which occurred in 2016, led to an increased export volume (although it remains hypothetical whether this increase would have been more without Colin’s appearance) out of both volumes.
As a result, it is more likely that the decline in gasoline stocks was a domestic customer demand draw. This should give hope to oil bulls, as it signals that summer consumer demand may be finally hitting its stride and gluts of refined products could ease, which (all else being equal) in turn could suggest that refinery throughput will be able to eat into the global crude glut. Watch this space to see if export activity recovers from the expected slow-down due to the July 4 festivities and whether this provides enough insulation from a corresponding expected slow-down in consumer demand to turn the recent stock draw into a longer-term trend.
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