April WEX Fuel Index

The gasoline market rally may be starting in earnest with several tailwinds beginning to push the market toward higher ground.

Shifting gasoline specifications in the wholesale markets are starting to have an influence on prices, but in addition to this annual spring rite of passage, gasoline markets have found some supportive data in recent weeks.

U.S. gasoline inventories have dropped in each of the past six weeks, according to EIA data, and for the past four weeks total supplies have been at a deficit to the past year. Falling storage levels for gasoline are not uncommon in the late winter and early spring. That’s because suppliers clear up tank space for summer grade gasoline by dumping the perishable winter blends. In addition to the drop in supplies, gasoline demand has been on solid footing the past couple of weeks as the summer driving quickly approaches.

Some of the struggles for gasoline demand during the winter was tied to the large spread between retail gasoline prices in 2017 and 2016. At points through the first quarter U.S. retail prices were averaging 50-60 cents more than the same time frame last year. At the beginning of April that spread has narrowed closer to 20-25 cents and should decrease throughout the month.

Crude oil prices continue to hover near the $50 per barrel level as they have for much of 2017. Compliance with OPEC production cuts are running at 90% plus, but January and February are likely to be as good as it gets. March and beyond expects to see higher output to help meet increases in domestic oil demand from the exporting countries.

While production cuts from oil exporting countries may be thinning out some of the oversupply in other OECD countries, U.S. storage levels continue to rise hitting new all-time highs in recent weeks. Oil inventories in the U.S. should be at or near a peak as refineries return from maintenance and help boost demand in the 2nd quarter. Although WTI futures did spend some time below the $50 barrel level, there does not appear to be enough bearish factors that would keep prices for an extended period of time.