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Cold Weather Should Not Affect Gasoline

David Becker
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The frigid weather that has overwhelmed the mid-west and eastern portions of the US has reduced economic activity while driving up the prices of heating fuels. Both natural gas and heating oil has climbed during the January and February period, with natural gas capturing the spotlight in many parts of the country. With heating oil draws continuing through February, the question on petroleum traders’ minds is how with this effect spring gasoline inventory levels.

From January 1, 2014 to February 18, 2014 the spot natural gas price at the Algonquin Citygate hub serving Boston averaged $22.53 per MMBTU. This price is a record high for these dates, and 50% above the same period in 2013, when cold weather drove New England prices to their highest level since 2004. The strong demand for natural gas has pulled additionally draws from distillates, which has dropped inventory levels to 5-year lows.

The pull on heat has driven up gasoline prices. Despite the recent price rise, the gasoline market remains well-supplied as the spring refinery maintenance season approaches. During this period, refiners will close operations in an effort to curtail distillate product and prepare to provide the markets with gasoline production.

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 on January 17, total U.S. gasoline inventories fell 2.2 million barrels to 233.1 million barrels on February 7; according to the Department of Energy, typically over this period, inventories build.

High refinery runs have helped keep inventories above their five-year average for nearly every week since March 2013. For the four weeks ending February 14, gross inputs into U.S. refineries averaged 15.5 million barrels a day, 1.0 million barrels a day more than the five-year average, and about 0.9 million barrels a day more than last year at this time. With refinery runs high, gasoline production has been rising. Crude oil production will continue to remain robust, which means that refiners will be in the spotlight as the maintenance season approaches. Even if March is a cold month, refiners will likely be able to produce enough gasoline to match market demand.

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