Gasoline Slides as Brent Crude Declines, Fuel Inventories Swell

Gasoline slid the most in two months as Brent crude retreated, lowering the cost of imported crude and motor fuel at a time when U.S. inventories are increasing and demand is stagnant.

Futures sank 1.9 percent as Brent dropped following the startup of the expanded Seaway pipeline, which will bring domestic oil to the Gulf Coast, pushing out imports. Gasoline consumption in the U.S. is the lowest in almost a year and inventories are the highest since February 2011, Energy Information Administration data show.

“This is taking the pressure off Brent crude and could translate into lower product prices across the board,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago. “You’re alleviating the glut, getting it out to the refiners who can actually buy the stuff, and they can put more product out into the global marketplace.”

Gasoline for February delivery fell 5.38 cents to settle at $2.7395 a gallon on the New York Mercantile Exchange, the biggest decline since Nov. 7 and lowest settlement since Dec. 21. Futures declined 0.9 percent this week, the second consecutive loss.

Gasoline’s premium over WTI, or the crack spread, narrowed $2 to $21.50, the smallest difference since Jan. 26.

“There’s some concern about refinery margins,” said Jason Schenker, president of Prestige Economics LLC in Austin, Texas. “We had really low product inventories and now we have high product inventories.”

Seaway Startup

The 500-mile (805-kilometer) line running from Cushing, Oklahoma, to Freeport, Texas, has resumed full service after shutting Jan. 2 to complete the final connections necessary to expand its capacity to 400,000 barrels a day from 150,000 barrels.

The expansion of the line, owned by Enterprise Products Partners LP and Enbridge Inc., is expected to shrink record levels of oil supplies at Cushing and reduce imports to the Gulf Coast.

Brent for February settlement fell $1.25, or 1.1 percent, to $110.64 a barrel on the London-based ICE Futures Europe exchange, the biggest decline since Dec. 21. The European benchmark grade’s premium to West Texas Intermediate shrank 99 cents to $17.08 a barrel, the smallest gap since Sept. 19.

“Products and Brent are significantly weaker than WTI,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston. “The startup of Seaway will enable increased volumes of Midcontinent crude to reach the Gulf Coast, impacting Atlantic Basin crude oil supplies.”

Gasoline Supplies

U.S. gasoline supplies rose 7.41 million barrels to 233.1 million in the week ended Jan. 4, the highest level since Feb. 25, 2011, according to data from the Energy Department’s Energy Information Administration. Supplies, up 16 percent in seven weeks, are the highest seasonally since the department began reporting weekly data in 1990.

“We’ve built so much inventory at a time when demand is weak that even if demand increases, there are plenty of inventories,” said Amrita Sen, chief oil market strategist at Energy Aspects Ltd., a research consulting company in London.

Gasoline demand slid 6 percent to 8.01 million barrels a day, the lowest level in almost a year. Total fuel demand sank to 17.8 million barrels a day, the lowest level since March 16.

“Without the support of rising crude prices, the market refocuses on demand levels in the U.S.,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “The market is letting some air out of the bubble.”

Distillate Inventories

Distillate inventories rose 6.78 million barrels to 130.7 million, the highest level since April 6. Supplies of ultra-low sulfur diesel are the highest since March 2. Demand for heating oil and diesel fell 5.2 percent to 3.09 million barrels a day, the lowest level since July 2009.

Refiners used 89.1 percent of capacity, compared with 85.5 percent for the same week during the past five years.

“Distillate inventories continue to rise as refinery operating rates are at historically high levels for this time of year,” Lipow said.

Heating oil for February delivery fell 4.58 cents, or 1.5 percent, to settle at $3.0085 a gallon on the exchange, the largest drop since Dec. 6. Prices declined 0.3 percent since Jan. 4, the second straight weekly loss.

The average nationwide retail price for regular gasoline gained 0.3 cent to $3.313 a gallon, AAA said today on its website. That’s the highest price since Dec. 11.

Before it's here, it's on the Bloomberg Terminal.