US refiners are gradually ramping up run rates on the back of improving consumption to ease excess fuel stockpiles accumulated during the height of coronavirus-related lockdowns. The strategy has been successful for gasoline but persistently weak demand for distillate fuel oil pushed inventories to their highest since 1982, which may put crude oil demand under pressure.
EIA data showed US refiners processed 14.3 million bpd of crude last week, rising from 14.0 million bpd in the prior week and 12.7 million bpd in early April. Despite the increase, crude processing rates remain 16% below the five-year average. The total volume of products supplied, a proxy for demand, was only 12% below the five-year average.
Gasoline stocks have dropped by 12 million barrels since mid-April, despite higher production. Gasoline inventories are now about 8% higher than the five-year average, down from 10% during the most intense period of lockdown. However, distillate stockpiles continued to climb to a 38-year high of 178 million barrels last week, 28% above the five-year average.
With such development, US refiners are expected to maximize their gasoline production, while minimizing yields of distillate. A slow ramping up will allow them to control fuel stocks and ease the downward pressure on their margins. However, without a significant demand recovery, refiners may have to pause their planned throughput increase to allow the market to absorb their excess distillate stocks.
