Rising U.S. gasoline production and tepid demand at the start of the auto travel season have increased U.S. gasoline inventories in recent weeks, putting pressure on refining margins and market sentiment. oil.
Lower demand for gasoline compared to last year, a well-supplied market with refineries increasing production after spring maintenance, and the recent drop in oil prices have all contributed to a decline in gasoline prices. gasoline in the United States at the beginning of the summer season. This is good news for American consumers and for the current president of the United States who is seeking re-election in November.
However, rising inventories and refinery production are depressing refining margins, which could lead U.S. refiners to reduce fuel production soon, especially if gasoline demand remains weak. during most of the summer.
Increased uncertainty for gasoline supply and prices later this summer could be what is expected to be a busier-than-normal hurricane season, which could strain some refineries on the Gulf Coast to shut down operations in case major storms approach the Texas and Louisiana coasts in August and September.
Together, the two refining regions, Texas and Louisiana, account for 48% of total US refining capacity, while the potential for a stronger hurricane season suggests a greater risk of disruptions to the climate-related production disruptions in the U.S. oil and natural gas industry, the EIA warned last month.
Although the path of a single major storm would likely affect no more than a single group of refineries, more than 1.0 million barrels per day (bpd) of capacity could be temporarily shut down in anticipation of a major storm, the administration said.
Until a potential refinery shutdown occurs later this summer, the picture of the U.S. gasoline market in early summer suggests that refiners may have overestimated demand.
Weekly gross inflows at U.S. refineries rose to 17.511 million bpd in the latest reporting week through June 7, according to EIA data. That’s the highest since 2019, before COVID.
But with refiners ramping up fuel production in the face of weaker demand, gasoline inventories have been rising in the U.S. in recent weeks, hurting refiners’ profits for producing a barrel of gasoline.
Refinery utilization was 95% in the week to June 7, compared to 93.7% in the same period last year, and the highest seasonal since before COVID.
If demand were strong, this high rate of US capacity in operation would be justified. But demand is not strong, it is weaker than last year. Although gasoline demand has been rising since April, it is still below last year’s levels by about 150,000 bpd to 200,000 bpd.
As a result, U.S. gasoline inventories have increased in each of the three weeks through June 7 and were at 233.5 million barrels at that time. This was an increase in inventory of 2.6 million barrels for the seven days to June 7, with an average production of 10.1 million bpd. In comparison, the previous week saw an increase in inventory of 2.1 million barrels, while production averaged 9.5 million bpd.
If weak demand and rising inventories persist, US refiners could soon reduce utilization as their refining margins are further eroded.
U.S. gasoline margins were $21 per barrel lower in May compared with the same month in 2023 and were at their lowest level since May 2021, according to Energy Intelligence data .
Signs of an improvement in demand are not yet seen, for now, it remains weak despite the fall in gasoline prices.
According to GasBuddy data, U.S. gasoline demand in the week of June 9-15 decreased 1.4% from the previous week and was 1.1% below the four-week average, Patrick De Haan said , head of oil analysis at GasBuddy, on Sunday.
Gasoline prices fell again last week due to weak gasoline demand and growing supply, AAA said Thursday.
“Gasoline demand has been below 2023 for most of this year, and analysts believe economic uncertainty could suppress demand this summer,” said AAA spokesman Andrew Gross.
“So, is the typically robust summer car travel season a thing of the past? Or is gasoline demand simply taking longer to pick up? We may not know until the fall.”
By Tsvetana Paraskova for Oilprice.com
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