June 5, 2017 / 1:14 AM / 2 months ago

U.S. Gulf Coast unduly responsible for falling gasoline demand in 2017

FILE PHOTO - A woman pumps gas at a station in Falls Church, Virginia, U.S. on December 16, 2014.Kevin Lamarque/File Photo

NEW YORK (Reuters) - Even with Americans on track to drive a record number of miles this year, government data shows U.S. gasoline demand has been lackluster, and the South is to blame.

If the Energy Department data is correct, the U.S. Gulf Coast is having an unusual influence on the overall decline in gasoline usage so far this year. But analysts and traders said the region's status as a global refining hub may be skewing both the national and regional numbers.

U.S. gasoline demand in the first quarter was down 2.7 percent from a year earlier, according to the latest monthly data from the U.S. Energy Information Administration. The Gulf Coast accounted for 71 percent of the decline.

Gulf Coast gasoline demand, which ranks behind the East Coast and the Midwest, was down 11 percent in the first quarter, EIA data showed.

EIA uses "product supplied" as a proxy to measure U.S. gasoline demand. Product supplied measures the changes in volume of gasoline and other products at primary sources, such as refineries and storage terminals.

The Gulf Coast is the U.S. refining hub, sending products all over the U.S. and the globe. This makes it the most difficult region in which to track the flow of products, analysts and traders said. This means, for example, if the EIA overestimates exports, it would underestimate U.S. demand.

"The Gulf Coast has a lot of statistical noise," said Robert Campbell, head of oil products markets at consultancy Energy Aspects.

Campbell said he was not certain the EIA figures will be revised upward down the road, but he said the Gulf Coast market is showing no evidence that demand is down. The federal agency puts out final numbers in about a year.

"The cash gasoline market continues to be strong, refineries are running at high rates, and there's only been modest inventory builds," Campbell said. "There's no signs of distress, so that's telling."

Gulf coast cash conventional gasoline traded on Friday at about 6.25 cents below benchmark futures largely in line with year ago levels. Meanwhile, the more liquid CBOB strengthened last week to a near three-week high.

U.S. Gulf Coast refineries processed a record 9.45 million barrels of crude oil last week, according to the EIA, marking the third consecutive week above 9 million barrels. Meanwhile, gasoline inventories have remained near five-year highs, despite robust exports, EIA data showed.

U.S. driving volumes in the Gulf Coast also suggest gasoline demand remained strong during the first quarter.

Texas motorists log the second-most miles in the United States, trailing only California. Texas drivers traveled 1.9 percent more miles on the state's roads and highways through March than they did last year, according to the latest figures from the U.S. Department of Transportation.

Overall, motorists logged 272 billion miles (438 billion km) on U.S. roads and highways in March, up 0.8 percent from a year earlier, the Transportation Department said.

U.S. vehicle miles traveled were up 1.5 percent year-over-year through the first three months of 2017.

Reporting by Jarrett Renshaw and Devika Krishna Kumar; editing by David Gregorio

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