US refiners are jammed between the increasing output to meet gasoline demand and the glut of diesel and jet fuel with low margins.
According to the US Energy Information Administration (EIA), demand for gasoline has rebounded faster, by around 70% since early April. Stockpiles have fallen over the past two months, as the summer driving season was around.
On the contrary, distillate fuel consumption, which includes diesel, has only increased by 40% since April. Inventories are higher than normal, roughly 20% above the five-year average for this time of year at 177.5 million barrels.
Likewise, jet fuel demand is also seen to slump b 40% in 2020 to 3.1 million bpd.
At the moment, refiners in the country still possess ample stockpiles of diesel and other fuels while cannot produce gasoline without making distillates. Other than that, they cannot rely on profit margins.
The refining crack spread, a proxy of margins, last week dropped to the lowest level since April to USD7.93/barrel as demand is not strong enough to draw down stockpiles nor keep up with increasing crude prices.
Since the end of July, refiners have been running at roughly 80% of utilization. While the level is still up from the spring, it is still below the normal levels. In the aftermath of Hurricane Laura, several refiners are not in a hurry to reopen as they did not make a significant profit, along with the concern of oversupply of distillates.
Analysts estimated the output would not improve as the summer driving season is coming to an end and winter season is coming. Gasoline demand usually declines in winter, therefore distillate demand will likely also see more contraction than usual, commented Patrick De Haan of GasBuddy.
