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Refiners plan to spend the summer increasing production of jet fuel and diesel instead of gasoline, traders and analysts said, favoring what have historically been the least profitable parts of the barrel instead of the most profitable.

This is unusual and illustrates the topsy-turvy nature of global oil markets. Refining crude oil into diesel or jet fuel is currently more profitable than making gasoline due to a squeeze on inventories in Europe following sanctions on Russia.

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Normally, U.S. refiners ramp up gasoline production in the spring and summer to meet driving season demand, while the profitability of distillates like diesel or jets declines.

However, sanctions imposed on Russia due to the war in Ukraine, pandemic-related refinery closures that have reduced capacity, and an unexpected spike in natural gas prices have reduced the volume of fuel refiners can produce. especially in Europe, which depends on diesel as a source of supply. primary engine fuel.

Over the past two weeks, distillate exports have averaged more than 1.6 million barrels per day, the most since mid-2019, according to figures from the US Energy Information Administration.

“The United States now acts as the barrel of last resort for an Atlantic basin that is struggling to find alternatives to shunned Russian crude oil and petroleum products,” Citi analysts said in a Wednesday note.

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This boosted profits for US-based distillate refiners. Currently, the profit margin on distillates is nearly $60 a barrel, while the margin for making gasoline is $34. Over the past 10 years, the average at this time of year for distillates and gasoline was $26.24 and $27.48, respectively. (GRAPHIC: Refining margins

“U.S. refineries may have little incentive to move to higher gasoline yields as the differential between RBOB and fuel oil remains large,” Citi wrote.


Even though export demand has increased, not all regions of the United States are seeing the same benefit.

Gulf Coast refineries, which account for about 45% of the country’s refining capacity, are operating at 94% utilization, according to EIA data.

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However, in the Midwest, demand from local farmers was weak due to unseasonably cold weather that delayed the planting season. Plantings were 4% complete on Sunday, below the five-year average of 6%, according to the US Department of Agriculture.

“It’s an uneven market because so many barrels of diesel are needed elsewhere in the world and we have too many inland, which drives physical prices down,” a commodity broker said.

Distillate inventories in the Midwest, known as PADD 2, are just 0.4% lower than they were a year ago, even as distillate inventories nationwide have reached lows not seen since May 2008 this week. Chicago Ultra Low Sulfur Diesel was trading 21.5 cents per gallon below diesel futures on Tuesday; at this time last year, it was 5 to 8 cents above that benchmark.

Refiners also increased jet fuel production as air travel rebounded from a long pandemic-induced slump.

On the US East Coast, home to some of the busiest airports in the world, jet fuel traded more than $100 a barrel above Brent futures as stocks hit their lows level in 32 years.

Market rebalancing will depend on demand. The rising cost of diesel and gasoline has started to reduce consumption in the United States, as demand for both fuels has recently fallen below the five-year average, but not by much.

(Reporting by Laura Sanicola; Editing by Leslie Adler)



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