Gasoline prices in the United States will continue to fall as refiners continue to produce other products

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A person puts gas into a vehicle at a gas station in Manhattan, New York, U.S., August 11, 2022. REUTERS/Andrew Kelly/File Photo

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Sept 8 (Reuters) – Wholesale gasoline prices are expected to continue to fall over the coming months as U.S. refiners overproduce fuel in a bid to replenish low inventories of diesel and heating oil, analysts and traders say.

U.S. stocks of distillates, which also include jet fuel, are at their lowest level in more than a decade. Margins to make these products have remained high due to strong demand from Europe and elsewhere, and a lack of refining capacity to meet that demand.

Gasoline demand has also been high, but is declining now that the US driving season is coming to an end. U.S. independent refiners signaled earlier this year that they would continue to operate at high rates even as gasoline demand declines in order to replenish low middle distillate inventories.

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Middle distillate inventories held by industry in the Organization for Economic Co-operation and Development totaled 483.6 million barrels in June, down 2.5% from February, data showed. International Energy Agency.

U.S. gasoline inventories are roughly in line with five-year averages, but are expected to rise as refiners can only change their processing mix to a certain extent. Gasoline crack spread – the margins taken from producing gasoline – fell to $14.59 on Wednesday, the lowest since February, and down from a high of $61.95 hit in early June .

Gasoline has historically been more profitable to produce, but fuel oil margins have skyrocketed due to a global shortage of distillate fuels. This gap is currently at $63.20, close to a record high reached earlier this summer.

“Refiners don’t want to make gasoline right now, but they’re forced to make gasoline with diesel, so they’re producing too much gasoline,” said John Auers, a refining consultant.

Refiners are currently operating at nearly 93% capacity, which is the five-year average, according to the US Energy Information Administration. A barrel of oil produces about twice as much gasoline as diesel.

Gasoline demand in the United States has weakened 4.4% so far this year, RBC estimates.

The retail price of gasoline is currently $3.764, down 11 straight weeks from an all-time high of $5.02 a gallon, according to the American Automotive Association.

Europe may not be able to keep producing enough distillates because these products need natural gas for processing, which the continent largely sources from Russia. Moscow has cut off much of its gas exports to Europe.

Refiners selling fuel in the Atlantic Basin will be incentivized to continue producing distillate to compensate for the lack of refining activity in Europe, Auers said.

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Reporting by Laura Sanicola; Editing by David Gregorio

Our standards: The Thomson Reuters Trust Principles.

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