U.S. Refiners Produce More Gasoline Amid Higher Margins

Reuters, May 21, 2021

U.S. gasoline prices are rising strongly, encouraging refineries to maximize gasoline production, even as they struggle with lacklustre demand for jet fuel due to international quarantine restrictions.

Based on futures prices, gross margins for making gasoline from U.S. crude oil have surged to more than $24 per barrel, up from just $10 at the start of the year, and the highest level since 2015.

Driving the rise in prices is a much faster recovery in demand for gasoline than for other oil products as economies reopen.

Margins are now in the 84th percentile for all weeks since the start of 2006, giving refiners a strong incentive to maximize production, even as they hold back output of other fuels.

Rising margins have pushed the average retail cost of gasoline above $3 per gallon, its highest level since 2014, according to nationwide pump prices compiled by the U.S. Energy Information Administration (EIA).

Gasoline accounted for 63% of the total output of the big three fuels (including diesel and jet) last week, among the highest weekly shares since 2009/10.

Gasoline inventories amounted to 234 million barrels, less than 1% above the pre-epidemic five-year average for 2015-2019 (“Weekly petroleum status report”, EIA, May 19).

Consumption was just 3% below the pre-epidemic five-year average, with stay-at-home orders lifted, travel to work restarting and most businesses open. Consumption has recovered much faster than for products as a whole, still down almost 6% last week, or refineries’ crude processing, down almost 9%.

High margins will ensure refiners squeeze as much gasoline out of the process as possible – even as they continue to limit crude runs to avoid producing unwanted jet fuel.

(Reporting by John Kemp; Editing by Susan Fenton)

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

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