Oil refiners are shifting production from middle distillates (predominantly diesel but also jet fuel) to light distillates (gasoline) amid uneven recoveries after the coronavirus-related lockdowns, according to John Kemp, a senior market analyst at Reuters. Refiners are reconfiguring their units to yield more gasoline as demand for the fuel is rebounding more strongly than that of diesel and jet fuel.
The virus containment measures sharply reduced personal movements. As a result, gasoline demand took a hard hit. However, many economies are exiting the lockdowns, prompting gasoline demand to improve in the recent month. Refining margins for gasoline turned negative at a point between late March and early April. However, it has since risen to near pre-pandemic levels.
On the other hand, customers still avoid mass transit systems and passenger aircraft. At the same time, reduced income affects business investment and household consumption. This effect is expected to last longer, and as a result, diesel and jet fuel demand are expected to remain weak through the rest of 2020 and into 2021. Middle distillates margins were less impacted in the initial stage of the pandemic, but are now recovering more slowly.
To respond to these dynamics, refiners cut gasoline output during the peak of the lockdown while increasing middle distillate production. However, they have sharply reversed the trend in the last several weeks. US refiners usually produce around 1.5 times more light distillates than middle distillates. However, the ratio fell to 1:1 in early April but then surged to nearly 1.7:1 last week.
