Bank Of America Sees Oversupply Of Gasoline For Summer

Bank of America commented on oil inventories Wednesday and expected a glut of gasoline for the summer.

Analysts led by Doug Leggate said that gasoline supplies remained “elevated on both an absolute and demand adjusted basis – with refinery utilization moving to peak levels.”

The analysts believed that “the first 10 mmbpd production week could be this summer” while robust demand had faded “with mixed commentary from refining earnings calls on sustainability beyond the oil price induced bump early in the year.”

“Heading to summer, gasoline production has the potential to challenge the combination of domestic demand and export capacity, risking further builds in domestic gasoline with stocks that already at record seasonal levels: in PADD 1 – the heart of driving season demand – gasoline stocks stand at 10 year highs. In our view, this is the biggest risk to margins in 2Q,” according to the analysts.

Leggate noted there may be some tight supplies on the West Coast due to unplanned outages of refineries, however, the sector as a whole appeared fully valued while the analysts continued to see an “unfavorable balance of risk,” with the bias remaining squarely focused on E&P.

The analysts claimed that refiners “can slow down,” however, as seen from Q1 earnings, “the cost is a lagging capture rate.”

Looking ahead, the analysts said that next major data point was the EIA’s monthly Drilling Productivity Report, "which monitors the impact of what is now a ~1,000 drop in the US onshore rig count on the ‘big 7’ shale production.”