Since it became the prompt contract at the close of trading on January 31, the Nymex futures contract for March delivery of RBOB (the petroleum component of gasoline) in New York Harbor has increased 19 cents per gallon (cpg), reaching $2.82/gal on February 19 (Figure 1). Despite the recent price rise, the gasoline market remains well-supplied as the spring refinery maintenance season approaches.
Inventory trends are a handy measure to roughly gauge supply/demand dynamics in a given market. One explanation for the recent price rise is that gasoline inventories have fallen in recent weeks at a time when they typically build. After reaching 235.3 million barrels (bbl) on January 17, total U.S. gasoline inventories fell 2.2 million bbl to 233.1 million bbl on February 7; typically over this period, inventories build 3.8 million bbl (Figure 2).
However, inventories increased slightly the during the week ending February 14, and even considering the recent draws, inventories remain above five-year average levels and modestly above levels at this time of year during the past two years. Gasoline inventories typically build gradually from early November and peak in early February. This year, inventories rose over a shorter period, but the builds were very pronounced. A period of particularly strong builds occurred from mid-December to mid-January when gasoline inventories increased 15.4 million bbl, 4.6 million bbl (43%) more than typical over this period. At their January 17 peak, total U.S. gasoline inventories were 8.2 million bbl above the five-year average, so even after recent draws inventories still stood 2.7 million bbl above the five-year average on February 14. Inventories can provide a key source of supply during refinery turnaround season, which typically runs from roughly January to April, but can vary regionally.
High refinery runs have helped keep inventories above their five-year average for every week since March 2013. For the four weeks ending February 14, gross inputs into U.S. refineries averaged 15.5 million bbl/d, 1.0 million bbl/d more than the five-year average, and about 0.9 million bbl/d more than last year at this time. With refinery runs high, gasoline production has been rising. During the first 11 months of 2013, gasoline production averaged 7.8 million bbl/d, 230,000 bbl/d more than the five-year average. Most of this incremental production has been on the Gulf Coast, where strong margins and a modestly lighter crude slate, which includes increasing amounts of Eagle Ford and Permian Basin crude, have helped increase gasoline supplies. With refinery inputs continuing to exceed typical historical levels in EIA's recent weekly data, it is likely gasoline production has remained high in the first months of 2014. However, not all regions have seen gasoline production grow. Production at East Coast refineries was 100,000 bbl/d below the five-year average through November 2013, because of reduced refining capacity. As of January 1, 2013 (the most recent date for which refinery capacity is available), operating refinery capacity on the East Coast was 400,000 bbl/d lower than it was at the start of 2008.