Hedge Funds Wager on U.S. Gasoline Gains as Exports Rise: Energy

Apr 28, 2014 1:46 pm ET

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April 28 (Bloomberg) -- Surging demand for U.S. gasoline from Latin America and Africa, coupled with refinery maintenance, is spurring speculators to bet that prices will keep rising after reaching a nine-month high.

Money managers boosted net-long positions by 3.8 percent in the week ended April 22 to the highest level in more than a year, the U.S. Commodity Futures Trading Commission said. Long positions reached a 14-month high.

Exports of U.S. gasoline were 35 percent above the five- year average in 2013 and are forecast to climb further in 2014 as refinery outages and rising consumption boosts shipments to Brazil, Colombia and Nigeria. Unplanned repairs at U.S. plants threaten to lower production already reduced by seasonal work.

“Refiners are having a hard time keeping pace with the overall demand, both domestically and internationally,” Tom Finlon, director of Energy Analytics Group Ltd, said from Jupiter, Florida, on April 23.

Gasoline for May delivery climbed 5.31 cents, or 1.7 percent, to $3.0952 a gallon on the New York Mercantile Exchange during the report period, the highest level since July 19. Futures were down 1.1 percent to $3.04 at 1:14 p.m. today and up 9.1 percent this year.

Gulf Exports

The U.S. Gulf Coast, home to more than half of U.S. refining capacity, shipped an average of 368,000 barrels a day of finished motor gasoline in 2013, compared with 262,200 in the previous five years, according to U.S. Energy Information Administration data.

Shipments to Colombia are set to climb as Ecopetrol SA, the state-owned oil company, carries out work at its Cartagena and Barrancabermeja refineries, according to the Paris-based International Energy Agency. The country imported about 170,000 barrels of oil products a day in January, almost all from the U.S., the IEA said in a report April 11.

Oil demand in Brazil reached a four-month high of 3.2 million barrels a day in February and is expected to expand 2.9 percent this year, according to the IEA. Deliveries to Nigeria more than doubled in 2013 from a year earlier. The country’s economy is forecast to increase by 7.1 percent this year, according to the International Monetary Fund.

“We’re basically supplying the world,” Greg Sharenow, executive vice president at Pacific Investment Management Co., said from Newport Beach, California, on April 25. “It’s another source in the demand picture and helps gasoline balances stay tighter in the U.S.”

Gasoline Demand

Gasoline consumption in the U.S. averaged 8.69 million barrels a day in the four weeks ended April 18 and will reach 8.94 million in the second quarter, EIA data showed. Demand usually peaks between the Memorial Day weekend in late May and Labor Day in early September as motorists take summer vacations.

Refiners typically complete most seasonal work in April and increase processing rates to meet demand. This year, unplanned work at plants including Motiva Enterprises LLC’s and Valero Energy Corp.’s Port Arthur, Texas, sites is constraining output.

Nymex gasoline jumped 1.3 percent during the last two days of the reporting period after Motiva was said to be shutting a crude unit and a reformer at the nation’s largest refinery and Valero was said to reduce rates on a coker unit.

Lower Production

U.S. gasoline output slid by 48,000 barrels a day to a two- month low of 8.89 million, the EIA said April 23. Stockpiles of 210 million barrels were the lowest since Nov. 15.

About 700,000 barrels a day of refining capacity will be shut in May, compared with 561,000 barrels in April, according to Energy Aspects Ltd., a research company in London.

“You have every reason to be bullish gasoline,” Robert Campbell, the head of oil-products research at Energy Aspects, said from New York on April 23.

Prices at U.S. pumps, averaged nationwide, rose 0.1 cent to $3.696 a gallon on April 26, 5.5 percent higher than a year ago, according to Heathrow, Florida-based AAA, the nation’s largest motoring group. Drivers can expect to pay an average of $3.57 a gallon this summer, a penny less than last year, the EIA said April 8.

Net-long positions held by money managers, including hedge funds, commodity pools and commodity-trading advisers, increased by a combined 2,813 futures and options to 76,338 in the report week, the highest since April 2013. Long positions added 5,116 to 92,129 contracts, while shorts gained 2,303 to 15,791.

Prices slipped during the three days following the report week to close at $3.0751 on April 25.

“The increase in shorts indicates the market is approaching a top,” said Finlon of Energy Analytics.

Hedge Funds

Hedge funds boosted their net-long positions in ultra-low sulfur diesel by 64 percent to a combined 32,987 futures and options. Futures rose 0.5 percent during the report week.

Bullish bets on West Texas Intermediate crude slid 2.3 percent to 333,791. Prices for the grade fell 1.6 percent in the reporting period.

Speculators boosted bullish bets on Brent crude by 20 percent to 203,913 contracts, the highest level since Sept. 3, according to the ICE exchange.

Net-long positions in natural gas advanced 2.3 percent to 435,869 contracts, as prices climbed 3.8 percent. The measure includes an index of four contracts adjust to futures equivalents: Nymex natural gas futures, Nymex Henry Hub Swap Futures, Nymex ClearPort Henry Hub Penultimate Swaps and ICE Futures U.S. Henry Hub contract.

Harbor Supplies

Gasoline futures for May will expire on April 30. Supplies in region that includes New York Harbor, the delivery point for Nymex futures, climbed 55,000 barrels to 28.9 million on April 18, the first increase in four weeks.

“I wouldn’t want to be short gasoline going into expiration but it’s questionable whether we will see these prices follow through in the June contract,” Stephen Schork, president of Schork Group in Villanova, Pennsylvania, said April 25. “We should start to see heavy return from turnarounds that will drag on prices.”

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--With assistance from Barbara Powell in Houston.