Two weeks ago, Goldman analysts were stunned when they noted that in recent weeks gasoline demand in the US has collapsed to levels that suggest not all is well with the economy. In fact, as the bank's oil expert Damien Courvalin said "to achieve the 5.9% decline suggested by the weekly data, our model requires PCE to contract 6%, in other words, a recession."
Goldman then quickly changed the unpleasant narrative - one which would suggest that the US economy is in far worse shape than official data represent - and provided several alternative explanations why such a "sudden collapse is unlikely" and said that "we view the larger than seasonal ytd builds in US gasoline stocks as driven by transient supply factors rather than persistent demand issues."
Perhaps, but so far those "transient" supply factors are only getting more chronic, and as supply continues to grow in anticipation of a demand bounce that refuses to materialize, leading to ever louder speculation that there is something very wrong with the US consumer...
... gasoline inventories have hit record levels, and nowhere is this more obvious than on the East Coast, where as Bloomberg writes overnight, "the biggest gasoline market in the U.S. is bursting at the seams."
As a result, just like during last year's unprecedented gasoline glut which, too, was supposed to be "transient", but has only gotten worse, traders are now lining up to export gasoline and diesel from New York Harbor, an area that normally relies on fuel imports from Europe and eastern Canada.
While at least 6 cargoes that were headed to New York from Europe in January and early February were diverted to the Caribbean or the U.S. Gulf Coast, that wasn’t enough to stem the oversupply building up in terminals along the Eastern Seaboard. Record-high inventories in the region are now pushing prices low enough to turn the typical trade flow on its head.
Gasoline supplies in PADD1, the Central Atlantic region of the East Coast, the delivery point for New York Mercantile Exchange futures contracts, rose to a record 42.3 million barrels last week. Imports of fuel to the entire East Coast averaged about 350,000 barrels a day in the first 11 months of 2016 while exports averaged 138,000 barrels, EIA data show. The chart below shows just how serious the East Coast inventory glut has become, and why New York harbor is no longer accepting gasoline shipments.
Total U.S. gasoline stocks also touched a record 259 million barrels, even as American refiners produce less fuel during the height of refinery maintenance season. U.S. crude unit outages are expected to average about 1 million barrels a day this month, and peaked last week at 1.29 million.
“We have been exporting out of the New York Harbor, but clearly not enough, so that’s putting pressure on the products,” said Robert Campbell, head of oil products research for Energy Aspects.
As demand fails to rebound, and as product keeps building, the only option is to either divert inbound cargoes or to export more. Both are taking place. According to Bloomberg data, at least two million barrels of clean products like gasoline and diesel are planned to be exported from New York Harbor and Philadelphia in coming days. BP Plc and Glencore Plc are among shippers sending fuels to West Africa and Europe as the U.S. East Coast saw its gasoline stockpiles break a fresh record high for the third consecutive week.
For the time being, there is virtually no hope that this unprecedented product glut will moderate because as the DOE reported last week, crude inventory also hit a new all time high.
While this clearly suggests that the OPEC supply cuts have done nothing to offset record inventories, and that contrary to OPEC pleas the oil market - which are now being boosted by a surge in US shale production which has found a price around $50/barrel to be quite profitable - is far from equilibrium, it also means that both oil and gasoline inventories will only continue to rise, because as refiners begin maintenance shutdowns, crude will accumulate at an even faster pace.
Which brings us to the real question: where is the demand?
While we don't have an answer, we will remind readers that exactly the same situation in which New York Harbor was quietly moving gasoline inventories to other venues as a result of an inventory glut took place last year, and then - just like now - we asked the one question that nobody seems to want answered: why is demand so low? This is what we wrote last August.
Remember that pile up of tankers in NY harbor we wrote about a month ago? Well, they're gone. But not because there is demand for their product - they simply found a different place where to store their excess inventory: gasoline has shifted south amid cargo diversions and deviations. A 330,000-barrel tanker usually on the Houston-to-Jacksonville, Florida, run last month moved two products cargoes to Florida from New York Harbor, according to vessel tracking data compiled by Bloomberg. Since June, at least eight foreign import cargoes originally booked to supply New York were sent instead to the U.S. Gulf Coast and Mexican West Coast.
And just like that, the DOE gets to report a gasoline draw, even though neither supply, nor demand has changed, but was merely a cargo that disappeared from the books as it moved from point A to point B.
Sadly, the problem remains as there is no excess demand for gasoline at either Point A or Point B. Which means that the bullish catalyst that sent oil surging this week on a modest decline in gasoline, will promptly reverse itself as the tanker glut returns, at either of America's numerous ports.
As PKVerleger summarized, “The situation is extraordinary,” and indeed it is, as industry players resort to every last trick in the book to feign incremental demand for either gasoline or oil, when none exists.
And since like in 2016, it all comes down to demand, we wonder at what point will Goldman admit that its "transient factors" explanation is meaningless, and admit that the consumer "recession" it first flagged earlier this month, is the most likely explanation.