Refiners around the globe have been pumping out more gasoline, a money maker for these businesses as vacationers take to the road during the summer. But demand is falling short of expectations, especially in the U.S., the world’s largest gasoline market – a shift that is hitting margins.
The health of the gasoline market has wide-spread implications, particularly for oil prices, which are already down some 9% since mid-April. Some of that has been driven by news that OPEC and allies plan to begin phasing out some production curtailments after September, but concerns around global fuel demand are also a major factor.
U.S. crude inputs at refineries are about 3.3% above the four-week average, at 16.94 million bpd, according to the EIA. They declined slightly last week to roughly 17 million bpd.
In Asia, the profit for making gasoline from Brent halved in the final week of May to about $4 per barrel. In Europe, margins are down to around $10.80 as of last week, their lowest since January, and in the U.S. the value of turning WTI into gasoline was under $22.50 a barrel for the first time since February.
Weaker gasoline margins could extend run-cuts, which would weaken demand for crude oil. In Asia, Taiwan’s Formosa Petrochemical Corp – one of the largest refined products exporters – has already planned cuts this month.
In the U.S., refiners ramped up to around 95.4% utilization the last week of May, which is actually not terribly far where we were a year ago. Demand, however, hasn’t kept pace. The four-week average for product-supplied, a proxy for demand, is down about 1.3% for early June, at around 9.1 million barrels per day.
U.S. gasoline stocks are currently up by 5.7 million barrels since the start of April and as of last week were at their seasonal highest since 2021.
The jump in stocks comes amid refinery expansions and start-ups around the world, including the massive Dangote refinery in Nigeria. In the U.S., oil refining capacity rose by 1.5% to 18.38 million bpd this year, according to a U.S. Energy Information Administration report published last week. This is in part due to the start of the 250,000 bpd expansion at Exxon Mobil’s Beaumont, Texas, refinery.
Still, there could be some relief ahead. U.S. refiners cut output last week for the first time since April. China’s output slipped 1.8% from year-ago levels in May, government data showed, amid unplanned maintenance and as higher crude costs pressured margins.
