U.S. Refiners Could Face Emerging Glut of Fuel

Reuters, September 20, 2018

U.S. refiners have processed a record volume of crude in the last three months, reversing the previous shortage of distillate but leaving the country with record gasoline stocks at the end of the summer driving season. Fuel availability has been helped by the absence of a direct hurricane hit on the major refining centers located on the coasts of Texas and Louisiana, in stark contrast to the refinery closures caused by Hurricane Harvey in 2017. Refiners have carried on processing at elevated rates well after the end of the normal summer driving season and into September in order to rebuild previously depleted distillate stocks.

But the now-plentiful supply of gasoline and to a lesser extent distillate implies refiners will have to cut processing more sharply than usual over the next couple of months to avoid creating a glut of refined products. U.S. refiners processed 17.4 million barrels per day (bpd) of oil in the week to Sept. 14, up from 15.0 million bpd in 2017 (impacted by Hurricane Harvey) and 16.6 million bpd in 2016. Refiners produced a seasonal record 5.5 million bpd of distillate last week, up from 4.5 million bpd in 2017 and 5.0 million bpd in 2016, according to the U.S. Energy Information Administration.

Distillate stocks have risen to 140 million barrels up from a recent low of just 114 million barrels in mid-May (“Weekly Petroleum Status Report”, EIA, Sept. 19). Distillate inventories are now just 6 million barrels below the 10-year average compared with a deficit of 25 million barrels as recently as July 20. Distillate availability has been improving significantly over the last eight weeks after deteriorating more or less continuously since the start of the year.

But the consequence of heavy refining activity to produce distillate has been the emergence of a potential over-supply of gasoline. Gasoline stocks remained plentiful throughout the peak summer driving season and are now at a record for the time of year. Gasoline inventories stood at 234 million barrels at the end of last week, up from 216 million at the same point in 2017, 227 million in 2016 and a 10-year average of 215 million.

Refiners use the shoulder season between the end of summer driving demand and the onset of winter heating to undertake scheduled maintenance and change refinery configurations. Crude processing typically declines by almost 1 million bpd between the middle of August and early October, before starting to pick up again from the start of November. But this year the decline may need to be deeper and/or longer than average, otherwise the market will head into the year-end with too much fuel, especially gasoline.

(Writing by John Kemp; Editing by Edmund Blair; John Kemp is a Reuters market analyst. The views expressed are his own)

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