Largest East Coast Pipeline Reveals Demand For Gasoline Is Crashing

Tyler Durden's picture

There's a reason this week's EIA survey showing gasoline and oil supplies declining has failed to stop RBOB prices from collapsing to 7-month lows: The start of the summer has done nothing to revive sluggish demand. That's because despite what the EIA survey said, little has been done to reduce record fuel inventories.

The squeeze has gotten so bad, Northeast Colonial Pipeline Co., the operator of the biggest US fuel pipeline system, said that demand to transport gasoline to the country's populous northeast is the weakest in six years, the latest symptom of a global oil market grappling with oversupply. It’s notable that this peak has arrived despite the advent of the summer driving season, which has seen gasoline demand pull back from last year's record highs, according to Reuters.

Because of the oversupply in the northeast, “line space”… the cost of renting “space” on the pipeline to assure one’s ability to get supplies of gasoline when necessary… has gone negative, according to Reuters. What can be more exemplary of excess inventories and of reduced demand for gasoline than this?

Refiners are in part to blame for the problem - they have continued to pump motor fuel at record levels for the second year in a row, worsening the oversupply problem, for fear of losing access to pipeline capacity. 

More broadly, attempts by large producers to reduce global supplies have failed to meaningfully raise the price of oil.  And with good reason: Traders have been skeptical of an agreement between OPEC and non-OPEC producers, including Russia, to extend last year's supply cut, and already they're concerns are being validated: Iraq has said it plans to increase production later this year despite the agreement.

The existence of negative capacity is a reversal of the typical dynamic, where refiners are forced to supplement their deliveries with tanker shipments or imports.

"The only reason [the pipelines] wouldn't be full is clearly that inventory levels are high enough that there is no incentive to move product to New York," said Sandy Fielder, director of oil and products research, Morningstar in Austin, Texas.

 

"The situation is quite unusual," he said.

Even when high inventories make it unprofitable to do so, refiners typically keep pumping full volumes just to ensure they keep their rights to the line space, said Fielden.

But it appears as if refiners have finally reached the point where the financial pain outweighs the necessity of keepig their lease on some pipeline space - after all, Colonial has capacity to spare right now.

"It's purely economic - why ship into a negative arb(itrage) for that long," one trader said.

Colonial connects Gulf Coast refineries with markets across the southern and eastern United States through more than 5,500 miles (8,850 km) of pipelines, delivering gasoline, diesel, jet fuel and other refined products. Colonial indicated it did not expect demand to exceed capacity for the next five-day cycle through the line, and informed shippers it would therefore not follow the typical process for rationing space.

Oil traders who insist on staying long can hold out hope that production shutdowns related to Tropical Storm Cindy could lift the price of oil for a short period. It's also worth noting that  Dennis Gartman, who recently said oil wouldn't rise above $44 a barrel again in his lifetime, just turned bullish folllowing a wave of downgrades from energy analyst. That could be good news...or maybe not.

While the cause of the supply is obvious, whatever has caused demand to fall off is less clear. Barclays has suggested that President Donald Trump's immigrant crackdown has made millions of illegal immigrants living in the US afraid to get behind the wheel for fear of being detained and deported. If this is true, that means Trump is to thank for gasoline prices falling to their lowest levels since February, despite the start of the summer driving season?

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Iconoclast421's picture

You dont need gas to BTFATH! you can do it from your phone.

Manthong's picture

 

I read that it’s Trump’s fault (here?).

The millions of illegals are driving way less for fear of being discovered and deported.

Sounds like a good deal to me..

Fewer drunken Mexicans on the road and lower gas prices.

 

That was a joke of course - I am not that insensitive.

However, good humor is based on truth.

 

BuddyEffed's picture

"a global oil market grappling with oversupply "

Oversupply is not the concern.    Throughput through the economic engine (a.k.a the internal combustion engine for all intents and purposes) could be slowing and that is significant.

Countrybunkererd's picture

Food for the car or food for the family... hmmm.  Tough choice.  Wait until they stop using the latest i-gadgets to pay for food.

Countrybunkererd's picture

Peak oilers, didn't that happen when the economy shifted to service based?

Jim Sampson's picture

So people could drive at $100 oil but not at $45?  Oh yeah, this is a recovery.

Thought Processor's picture

 

 

Correct.  And 'Peak Oil' was theorized to have some very weird effects on the price of oil itself.  Some of which have been detailed in ZeroHedge articles.  

 

The gist of it is that as things get sqeezed and energy becomes harder to produce, the economy itself slows over time.  This is deflationary not inflationary.  As a result prices decline and or become increasingly volitile.

 

Peak Oil was about peak production not prices.  Another way to explain it- when the production of a barrel of oil requires more than a barrel of oil in net energy cost then the returns on producing oil have fully diminished.  Prices may ramp short term but over the long term high energy prices slow the economy, resulting in less energy demand and downward pricing pressure.  

 

Again, the whole economy runs on energy much of it based on the price of oil, and if the oil input slows and energy prices rise short term then the economy slows as well, thereby putting longer term downward pressure on energy prices due to less demand.  It has some strange supply demand effects to be sure, as it effects the economy on many different levels over time.

JRobby's picture

Gas prices falling during the summer. 4th of July weekend coming up.

There is nowhere to go.

MalteseFalcon's picture

""The situation is quite unusual," he said."

You know what else is unusual?

A seeming gasoline glut, but here in the northeast gasoline prices have only gone up since March.

JamesBond's picture

and college tuitions continue rising ...

NoDebt's picture

No matter how low oil goes, gas is still $2.50 at the pumps around me.  The spread for refiners must be huge.  Cheap oil in, high priced gas out.  No wonder they're over-supplying.  Gas should be a FULL DOLLAR less at the pump than it is.

 

Lucretius's picture

Same here is far SE AZ. Been $2.39 since last yr, drive 100 miles to Tucson (Pooson, in oh so many ways!) and pay $1.95- $2.05, for the last YEAR! All the while, crude is in the toilet!

Forty cents a gallon is SO worth it, to not live in a sanctuary shity! li

El Oregonian's picture

Yes there is... LOWER! A real 'Thelma and Louise' situation, you can either feather it, or run it full bore, but either way we're all heading over the cliff.

LibertarianMenace's picture

The elemental thing in all of NATURE is feedback. Thus, there are consequences for all actions. This holds true for everything save proggie "ideas". I wonder why that is? I can only conclude that those who ignore such things aren't as worldly sensible as they think, they may even be idiots. Sad.

targayren hous's picture

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... www.jobproplan.com

TIMBEEER's picture

Hi Friend! I kept hearing people making thousands $ by mining Bitcoin and Etherium. I decided to look into it. Well, it was not that true and it hardly changed my life. Mining Etherium with my idle desktop PC only generated me 3 USD a day. This is what I do .. ETH Mining.

Yog Soggoth's picture

I don't like to drive because there's too many Mexicans in the way. But if they dropped a dollar off a gallon I would fill er up and hit the country. Lets see, 19 gallons of gas to a barrel . .. gotta wait until it hits 20. Cindy didn't hit anything that would slow down the production.

peopledontwanttruth's picture

Even ancient Babel was built from bitumen but it to came to nothing

OpTwoMistic's picture

RBOB is 1.45 a gallon.  They can export excess for twice that.

By the way, I was in the landfall of the last storm.   40 mph and 4 inches rain. The lights never flickered.  BS to any claims of lost production.

People without jobs do not need gasoline.  The world is drowning in oil and they are humping our ass at these prices.

JuliaS's picture

Fuel is always a means to get to some goal. Fuel expenditure is an investment with a return proposition, be that financial or emotional (going on a road trip). When value of return diminishes, the need for fuel goes down also.

Considering how wasteful transportation is in general (with most fuel going towards movement of the mechanical machine as oppose to its contents, there's definitely room to cut.

Not a bad thing, in my opinion. What is bad is the underlying reason behind reduction - everyone's broke.

Internet, I'm sure, is also responsible for some of this. It allows people to perform tasks remotely without having to transport themselves or the product from A to B.

Lukacko's picture

-Most people are broke, unemployed, and can just sit around watching the View, whilst eating toaster strudels and sucking down pepsi paid for by Snap.  All day.

 

- People with jobs are working from home in record numbers.

ShorTed's picture

Good dose of honesty...and none of that fake sensitivity (Manthong) either.  Sometimes the truth hurts!

Ban KKiller's picture

Son, 40, works in same building he and his family live in. Daughter, 25, lives (her own home) two miles from work downtown. Other son, 29, works from home. His wife, accountant, uses Uber to get back and forth when husband can't drive her. Two of us work out of our home and drive a lot less. 

Moe Howard's picture

I stopped working and cut out the middleman.

mkkby's picture

Who needs gas, when you are sleeping in your car?

Farmerz's picture

Travel is down now, just wait a couple years when everything will be delivered by drone.....

yogibear's picture

Hey, banksters and politicians you created a mess that's going to get worse.

yogibear's picture

Libtards are running out of other people's money so their taxing soft drinks 1 cent an ounce.

 

Give Me Some Truth's picture

Yep. "Real" unemployment is no doubt 3 to 4 times the official government rate. People used to drive to and from work and drive during work hours. Not anymore. Fuel "demand" is down because the economy is down and has been stagnant or declining for a while.

But the MSM can't say this apparently.

Last of the Middle Class's picture

YOu've got it all wrong again!!! It's massive unexpected inventory build, soon to be draw down. Never talk slack demand in a grossly overtaxed economy. You just will not get reelected or your Obamacare plan congressionally renewed!! Damn

Slippery Slope's picture

Nobody is driving because the economy is tanking. Gas prices are the lowest I've seen them here in a while.

#MAGGA - Make America Gas Guzzle Again

Mr Hankey's picture

Then why is every still driving 15 mpg Land Yachts?

Farmerz's picture

Still around 3 bucks here in N Cal. But what else is new.

Give Me Some Truth's picture

Unleaded is $1.91 in Montgomery, Alabama ... A nice, 3000-square foot house in Montgomery cost $250 to $300,000. Same house probably costs $2 million in parts of CA. The "housing bubble" never came to 98 percent of Alabamy.

BTW, we are told that the unemployment rate in Bama is under 5 percent. Right. 

 

 

Thought Processor's picture

 

 

Ok, so the economy is still great right?  I mean all the other manipulated data says everything is skittle shitting unicorns.  

 

So why can't they just tweak these numbers so that everyone stays on message?  How did this slip through?

 

Someone needs to get fired over this.

 

 

1stepcloser's picture

Why drive to the mall when Amazon can drone me....

Beam Me Up Scotty's picture

Hopefully they don't deliver a hellfire missile......

wisehiney's picture

Nobody on the road,
Nobody on the beach.
I feel it in the air,
The summer's out of reach.
Empty lake, empty streets,
The sun goes down alone.
I'm driving by your house
Don't know you're not home.

 

Henley

Wild tree's picture

Love that song and the weaving of the words. Salute

assistedliving's picture

"The situation is quite unusual," he said.

Unusual?  its a friggin shitstorm 

Winston Churchill's picture

Something is up with my richest clients as well, cutting back spending to bare essentials.

Had to argue with one,worth tens of billions,cause my bill was $30 more than normal.

Less affluent ones are cancelling contracts and losing their deposits.

Haven't seen it like this since 08/09.

Just my $0.02, how are other self employed ZHers finding biz ?

swmnguy's picture

I'm insanely busy.  Busier than I've been in 14 years of self-employment.

I coordinate corporate meetings.  I make sure the staging, video, audio and lighting get set up, programmed and cued for higher-end meetings.  Usually in hotel ballrooms, convention centers, etc.  My clients include a lot of Fortune 500 companies that you've heard of.

2007-2008 was my previous high-water mark.  Everything stopped cold in late October, 2008.  2009 was a desert; about a 70% decline and I and my peers were worried about losing our homes.  I realized that the big, lavish corporate meeting had become politically indefensible, but they'd still have to talk to their people and do training; even more urgently as people were fearing for their jobs too.  I started working more on training sessions to get through.

Things started picking up again gradually in 2010, but since late 2015 there has never been so much work in my industry.  I've recently added as a client a company that produces events for a number of end-user companies, including a fair amount of pharmacuticals.  Holy Moly, are they spending money.

My marketing plan is to mess around the house until my phone rings with somebody wanting to hire me.  For the past year or so I've turned down probably twice as much work as I've taken, just because of existing calendar conflicts.  I only have one me and I can only do so much work before I get over-committed and start making mistakes.  I've raised my rates and that hasn't scared people off.  I've gotten all the fundraisers and non-profits off my calendar, along with the small companies who nickel-and-dime me.

I get penny-pinched on some things, but it's usually a charade.  They think nothing of spending $50,000 to have an LED video wall, but challenge the need for 12 $35 lights, when maybe I could get by with 10.  Or they won't provide my crew lunch in the ballroom while we're working, so we take an hour break and bill back our receipts and that they don't mind.  Seems like the bean-counters understand a slight amount of what they're buying, but if they don't understand it and an executive wants it, it's going to happen.

My sense is that there is no real economic growth.  It's all cannibalism of one kind or another; either mergers and consolidations, or internal cutting, to make earnings look better for the next quarter.  They're spending a lot of money to keep up appearances, for sure.

assistedliving's picture

great you're doing well swm..but imo that last para says it best

beginning of the end?  (i kno, i kno like, since forever but...)

dutch04's picture

thanks for the helpful anecdotal (no sarc).  ;)

Mr Hankey's picture

Military/contractor town?

Farmerz's picture

No offense, but you have a useless job.