As American refiners overproduce fuel to try to replenish low stockpiles of diesel and heating oil, wholesale gasoline prices are anticipated to continue declining in the upcoming months.
The amount of distillate goods in stock in the United States, which also includes jet fuel, is at its lowest point in more than ten years. Due to the great demand for such goods in Europe and internationally and the lack of refining capacity to supply that demand, manufacturing margins have remained high. The demand for gasoline has also been strong, but it is declining as the U.S. driving season comes to an end. In order to refill low middle distillate stockpiles, independent U.S. refiners said early this year that they would keep operating at high rates even if gasoline consumption decreased.
The Supply Keeps Rising
According to data from the International Energy Agency, middle distillate stocks held by industry in the Organization for Economic Co-operation and Development were 483.6 million barrels in June, a decrease of 2.5% from February. Although U.S. gasoline stockpiles are now about in line with five-year norms, they are anticipated to grow due to refiners’ limited ability to change their processing mix. The profits made from manufacturing gasoline, known as the gasoline crack spread, dropped to $14.59 on Wednesday, the lowest level since February and below the peak of $61.95 recorded in early June.
Historically, it has been more economical to make gasoline, but due to a global lack of distillate fuels, heating oil margins have increased. At $63.20, that spread is now close to a record high set earlier this summer.
According to refining expert John Auers, refiners are now overproducing gasoline because they are compelled to produce it alongside diesel. According to the U.S. Energy Information Administration, refineries are now operating at close to 93% of their capacity, which is in line with the five-year average. Diesel and gasoline are produced from a barrel of oil almost twice as much. According to RBC estimates, demand for American gasoline has declined by 4.4% so far this year.
