Gasoline Drops as U.S. Demand Seen Slipping; WTI Steady

Gasoline fell after a government report showed U.S. output rose before the Labor Day holiday that marks the end of the country’s peak-demand driving season. West Texas Intermediate crude settled little changed.

Gasoline production rose 4 percent to 9.51 million barrels a day last week, the Energy Information Administration said. Inventories slipped 960,000 barrels to 212.3 million, less than the median 1.6 million projected by 10 analysts in a Bloomberg survey. WTI retreated from its highs after the EIA data showed crude supplies dropped a fourth week at Cushing, Oklahoma, the contract’s delivery point.

“The primary reason for the move in gasoline is that Labor Day is coming up on Monday,” Tim Evans, an energy analyst at Citi Futures in New York, said by phone. “Today’s numbers weren’t that bearish but we’re looking ahead to lower demand in the fourth quarter.”

Gasoline for September delivery dropped 1.72 cents, or 0.6 percent, to close at $2.7459 a gallon on the New York Mercantile Exchange. The volume of all futures traded was 20 percent higher than the 100-day average at 3:05 p.m.

U.S. gasoline pump prices were unchanged at $3.431 a gallon nationwide yesterday, the lowest since Feb. 24, according to AAA, the largest U.S. motoring group.

WTI for October delivery rose 2 cents to settle at $93.88 a barrel in New York. Volumes were 34 percent lower than the 100-day average. Futures are down 4.6 percent this year.

Cushing Supplies

Cushing crude stockpiles increased by 508,000 barrels to 20.7 million in the week ended Aug. 22, according to the EIA, the Energy Department’s statistical arm.

Nationwide crude stockpiles fell by 2.07 million barrels to 360.5 million. A 2.5 million-barrel drop in supply was projected in the Bloomberg survey.

The EIA forecasts U.S. output will reach 9.28 million barrels a day in 2015, the highest annual average since 1972. Production has surged this year as a combination of horizontal drilling and hydraulic fracturing, or fracking, has unlocked supplies trapped in shale formations, including the Bakken in North Dakota and the Eagle Ford in Texas.

“The fundamentals are pointing to lower prices,” Todd Horwitz, chief strategist at Adam Mesh Trading Group in Chicago, said by phone. “I wouldn’t be surprised to see WTI trading in the mid-$80s by the end of the year.”

U.S. refineries operated at 93.5 percent of their capacity last week, up 0.1 percentage point from Aug. 15, according to the EIA. Operating rates have peaked in July during the past five years when gasoline demand climbs as Americans take summer vacations. Refiners schedule maintenance for September and October as they transition to winter from summer fuels.

Distillate Fuel

Stockpiles of distillate fuel, a category that includes diesel and heating oil, gained 1.25 million barrels to 122.8 million. Analysts surveyed by Bloomberg were split over whether supplies rose or fell.

Ultra low sulfur diesel for September delivery rose 1.63 cents, or 0.6 percent, to close at $2.8605 a gallon in New York. It was the lowest settlement since Aug. 13.

“We have sufficient crude supplies and growing production here,” Chip Hodge, who oversees a $9 billion natural-resource bond portfolio as senior managing director at John Hancock in Boston, said by phone. “This has tempered the impact of unrest in all the hot spots out there. Prices would be much higher if these events occurred a few years ago before U.S. output rose.”

Fighting in eastern Ukraine between government forces and pro-Russian rebels raged on after Russian President Vladimir Putin met his Ukrainian counterpart, Petro Poroshenko, at a summit yesterday in Minsk, Belarus.

Ukrainian Charges

Ukraine blames its neighbor for stoking the insurgency in the east with manpower and weapons, an allegation Russia denies. Five months of unrest and more than 2,000 deaths have sparked the worst standoff between Russia and its former Cold War foes in two decades.

Brent for October settlement gained 22 cents to end the session at $102.72 a barrel on the London-based ICE Futures Europe exchange. Volumes were 30 percent lower than the 100-day average. The European benchmark crude closed at an $8.84 premium to WTI, up from $8.64 yesterday.

In Iraq, the president of the Kurdish Regional Government, Massoud Barzani, said he’s asked Iran for ammunition to fight insurgents that have overrun large swathes of the country, according to the Persian Gulf nation’s Mehr news agency.

The conflict in Iraq, the second-biggest producer in the Organization of Petroleum Exporting Countries, has spared oil facilities in the south, home to about three-quarters of its crude output. The nation pumped 3 million barrels a day last month, a Bloomberg survey of producers and analysts shows.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net

To contact the editors responsible for this story: Dan Stets at dstets@bloomberg.net Richard Stubbe, Stephen Cunningham

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