Gasoline shortages in the US during summer driving season cause problems

The U.S. is rushing into the peak driving season of summer, just as gasoline prices are rising.

The soaring summer demand for American automobiles hasn't stopped U.S. refining companies from prioritizing lucrative jet and diesel fuel production to backfill global shortages due to shipping disruptions in the Strait of Hormuz. Since the beginning of the Iran War, the Strait of Hormuz has been closed to nearly a fifth?of global oil flows. Analysts are warning that a shortage is imminent as U.S. demand for gasoline has been strong despite the fact that U.S. gas prices have risen by 40% since the start of the war, and hovered above $4. Some analysts worry that U.S. refining plants may not be able run at full capacity due to the recent increase in unplanned outages.

By the end of Memorial Day weekend, the cushion of gasoline supplies that had been built up during the winter months when demand was low in the U.S. evaporated. The peak U.S. summer vacation season typically runs from early September to the end of May.

According to government statistics, in the first week of this month, gasoline inventories fell to their lowest seasonal level for a decade - just 215.1 millions barrels. Since the start of the war, inventories have fallen by over 34 million barrels. Distillate fuel oil inventories fell to a record low of 23 years in May. This leaves the supply vulnerable to further shocks.

Analysts warn that the total demand for U.S. produced?fuel this summer could reach 9.5 millions barrels per day. Fuel makers can currently produce 9.2 million barrels per day. "Balances are going to be tight, because the (refining) margins and incentives still support jet fuel. And we know that Middle Eastern refiners won't return soon," said Sumit Ritolia.

The negliding child, GASOLINE

The U.S. refiners are less dependent on Middle Eastern crude oil than their Asian and European counterparts. They can maximize the distillate production to achieve strong margins. The EIA reported this week that the average four-week production of jet fuel in the United States surpassed 2,000,000 barrels per day, for the first ever time.

In May, the U.S. export 54.65 millions barrels of jet and diesel fuel. This is the highest number in data from?Kpler dating back to 2017. In May, the country exported 22,52 million barrels more gasoline than it did in April.

"This has made gasoline the forgotten stepchild in the refinery schedule," said Tamas Variga, an analyst at PVM oil Associates. In the past, the U.S. relied on imports from Europe to help ease regional gasoline shortages. This option has become logistically more difficult and economically less viable. Fuel supplies in Europe are also limited, and freight rates are rising due to the Strait of Hormuz blockage.

Tom Kloza is the chief energy advisor at Gulf Oil. He said that even if the export rate stays where it is, and doesn't increase to meet the urgent needs of other countries, gasoline inventories could drop by 2 to 3 million barrels a week during summer crunch times. Even if refineries run at full capacity, the refined product supply is still tight.

Analysts wonder if refiners can continue to run their plants at high speeds to maintain these margins. U.S. refiners operated their plants at 95.3% capacity during the first week of June, which was the highest level in almost a year.

Raul Calzada is a refining analyst with Energy Aspects. He said that there are already reports of planned maintenance for the fall being postponed or re-defined. Calzada said, "If you delay maintenance, you may have to pay later."

According to IIR Energy, cracks are beginning to appear. April saw the most unplanned refinery outages on average in the past five years. This equates to roughly 483,000 barrels of crude oil processing capacity per day being offline. Reporting by Nicole Jao, New York; editing by Liz Hampton and David Gregorio

(source: Reuters)