U.S. Gasoline Surplus Seen Over Near Term

Unless U.S. refiners reduce the amount of gasoline they now produce, the oil industry will enter the coming summer driving season with the largest surplus of motor fuel since 1984, oil analysts and traders said.

“They key question is how much gasoline refiners produce in the coming weeks,” said Larry Goldstein of Petroleum Industry Research Inc. “If refiners cut output and demand turns upward, gasoline stocks could begin to draw, and the surplus could potentially turn around in four to eight weeks,” said Goldstein.

The American Petroleum Institute said U.S. gasoline stocks for the week ended April 17 are 37.6 mln barrels above last year’s levels, and analysts said they don’t believe the expected one to two pct rise in demand will take care of the surplus before the start of the summer driving season, which begins Memorial Day weekend.

The API said the last time stocks were this high was in 1984, when there was a 27 mln barrel excess. Oil traders said that the surplus held throughout the summer of 1984, depressing prices for the motor fuel.

Over the past several weeks, analysts said they expected refiners to reduce production because there was no profit in continued production of gasoline due to the surplus. However, refineries continued to operate at higher levels, they said.

U.S. refineries have been running at about 78.8 pct of capacity during March and April this year, compared to 77.5 at this time last year, API statistics show.

Because of the current excess in stocks, one planner for a major oil company said he believed that most companies are contemplating cutting refinery throughput over the near term.

He said some refiners appear to be selling less aggressively in order to have product on hand to meet the expected rise in demand this summer.

Goldstein said that other factors, such as higher speed limits, the gasoline lead phasedown, and possible new restrictions on gasoline vapor pressure could tighten the supply situation this summer.

However, a planner at another major oil company said that although large inventories are dampening the price outlook for gasoline this season, he does not expect refiners to cut output soon.

That oil company planner said high crude oil runs reduce the refiner’s average costs, making the incremental barrel of gasoline cheaper to produce.

Most analysts expect a slight upturn this summer over the summer of 1986. Bo Poates, an analyst at the Energy Futures Group Inc said he foresees demand up about one pct in the second and third quarters of 1987.

Chase Econometrics’ Scott Jones sees gasoline demand rising 1.9 to 2.2 pct for the year, due mainly to continued low prices.