The backwardation in front of the NYMEX RBOB futures curve remained steep Tuesday as US gasoline stocks on the eve of summer were at their lowest for this time of year in the 22 years since the government has recorded the data.
The backwardation in the July/August month RBOB spread was trading around 7 cents in early afternoon US trade after reaching a session high of 7.6 cents/gal. On Monday, the spread settled at 7.44 cents/gal.
During the same time a year ago, backwardation was around 5 cents/gal for the front/second month RBOB spread.
Since May 1, the backwardation in the front/second month spread has been wide -- ranging between 3.2 cents/gal to more than 8.4 cents/gal.
As the backwardation remains strong, supplies of gasoline in the US are at their lowest level for this time of the year since the US Energy Information Administration began reporting weekly oil data in 1990.
US gasoline stocks were at 201.801 million barrels for the week ending June 8, according to the latest EIA report released last week.
Those stocks are about 8.2 million barrels below the five-year average and a whopping 13.264 million barrels below year-ago levels.
"We have seen a massive drawdown in gasoline stocks since its peak in February," said Mike Guido, managing director/energy markets at Macquarie. "At around 202 million barrels, we are lean ahead of the summer. If you look at real-time supply versus demand, there is justification for backwardation in the front of the curve."
In RBOB futures, analysts and market players said flows have been light and the market has been moving sideways since the start of the month.
NYMEX front-month RBOB futures have been confined to a range between $2.5971/gal and $2.7523/gal since June 1.
On Tuesday, July RBOB futures were down 1.3 cents at $2.6479/gal in early afternoon trade, while the rest of the oil complex traded higher.
US REFINERY RUNS HIGH, COULD LEAD TO STOCK BUILDS
With US refinery run rates at 92% of capacity for the week ending June 8 -- highest since August 2007 -- Guido said if investors don't see stronger gasoline exports soon, more gasoline stock builds are expected to come.
Refinery runs are expected to rise by 0.2 percentage point to 92.2% of capacity for the week ending June 15, according to analysts polled by Platts on Monday.
"There's not a lot of room to push this number higher, but there's plenty of high, stable margins to justify it," Carl Larry of Oil Outlooks said, noting that some refiners had units come back online last week.
During the June 9 weekend, BP restarted a crude unit at its 413,000 b/d refinery in Whiting, Indiana. The smallest of the refinery's three crude units had been offline since May 31 for unplanned maintenance.
Citgo's 167,000 b/d refinery in Lemont, Illinois, completed its scheduled turnaround work on June 12 after the entire refinery had been offline since early April due to planned maintenance.
Analysts polled by Platts also estimated that US gasoline stocks would rise by about 600,000 barrels for the week to June 15; EIA data will released Wednesday.
According to monthly EIA data, exports of finished motor gasoline were at 435,000 b/d in March -- the highest for the year so far, but down from 626,000 b/d of exports seen in November 2011.
At the same time, investors have been taking profits out of the RBOB crack spread, Guido said.
The front-month RBOB crack spread, basis WTI, was trading around $27.40/b Tuesday midday, after ranging between $27-28/b for most of the month.
On the demand side, US gasoline product supplied jumped to 9.130 million b/d for the week ending June 8, up more than 482,000 b/d from the week prior but was more than 262,000 b/d below the five-year average.
Implied demand for gasoline is also off by more than 240,000 b/d from the same reporting week in 2011.
In the physical gasoline market, traders continue to face difficulties selling cargoes into the US Atlantic Coast due to the backwardation in the front of the RBOB futures spread.
Due to the backwardation, buyers are said to be only interested in barges of around 25,000 barrels instead of cargoes that typically range from 150,000 barrels to 500,000 barrels.
