Weak Fuel Demand Still Hurting U.S. Refinery Run Rates

Reuters, July 24, 2020

U.S. refiners dialed back crude processing for a second week running, responding to lower consumption of all three major fuels.

Refineries processed an average of 14.20 million barrels per day (bpd) last week, down from 14.34 million bpd two weeks ago, U.S. Energy Information Administration data shows. The slowdown was barely perceptible but marks a significant change from the previous trend of strong and consistent growth since early May.

Refinery crude processing rates remain about 2.8 million bpd, or 17%, below the seasonal average over the past five years (“Weekly petroleum status report”, EIA, July 22). Fuel inventories, however, have remained high after lockdowns in many regional markets in April and May, with refiners ramping up processing slowly as they seek to reduce stocks to more normal levels.

That strategy has been complicated in recent weeks by a faltering economic recovery that has forced refiners to scale back production plans.

The volume of petroleum products supplied to the domestic U.S. market fell by more than 800,000 bpd last week and has not increased overall since the middle of June.

Gasoline supplied last week was 12% below the previous five-year seasonal average, distillates were 20% below the seasonal average and jet fuel was 38% below average. Distillates and jet fuel supplied have been extremely volatile on a weekly basis so last week's deterioration is of no great significance. 

In contrast, gasoline supplied had been improving consistently until two weeks ago, so the deterioration marks a change in trend. Softening gasoline consumption has coincided with a surge in coronavirus cases, renewed social-distancing restrictions and diminished road traffic volumes in a number of U.S. states.

But it underscores the uneven, incomplete and halting recovery in fuel consumption around the world since major economies started to emerge from lockdowns.

Managing fuel production against this backdrop will remain a major challenge for refiners and complicate market management for the Orgfanization of the Petroleum Exporting Countries (OPEC) and its partners in the wider OPEC+ producer group for the rest of the year.

(Reporting by John Kemp; Editing by David Goodman)

**John Kemp is a Reuters market analyst. The views expressed are his own

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