[Stay on top of transportation news: Get TTNews in your inbox.]
US Gasoline Inventories Face Record Summer Lows
Morgan Stanley Says Stockpiles Could Drop Below 200 Million Barrels by August
U.S. gasoline inventories are on pace to drop to historical seasonal lows by late summer, further straining a tight fuel market upended by the war in Iran.
Stockpiles are expected to fall below 200 million barrels by the end of August, Morgan Stanley analysts wrote in a May 4 note. The projections for record seasonal low fuel inventories are the latest indication that the global energy supply crunch appears set to continue for months to come.
“The U.S. gasoline market is genuinely tight and tightening further into summer,” Morgan Stanley analyst Martijn Rats and strategists Charlotte Firkins and Amy Gower wrote.
Total gasoline inventories stood at 222 million barrels as of late April — the lowest for that time of year since 2014, according to the Energy Information Administration.
In Morgan Stanley’s base case projection, in which current market trends “partially normalize,” inventories will fall to 198 million barrels by the end of August. That’s less than levels for the period at any time in modern data, according to the note. The decrease would push total gasoline stockpiles to the lowest at any time since October 2012, according to the EIA.
Inventory levels trending that low would widen the margin between gasoline futures and Brent crude futures — a price difference known as the gasoline crack spread — to $40 a barrel in July, according to the note.
Gasoline inventories in the U.S. have been lower before. But seasonal lows in gasoline supplies during the summer — when demand typically picks up as Americans hit the road — could raise prices at a time when consumers are already grappling with higher fuel costs. On average, U.S. drivers paid $4.48 a gallon at the pump as of May 4, according to the American Automobile Association.
Falling U.S. stockpiles are likely the result of a “collapse” in gasoline imports into the East Coast as the global market scrambles to secure fuel, Morgan Stanley said.
“The traditional resupply mechanism from Europe and the Middle East has effectively stopped,” the analysts wrote. “Saudi, Malaysian and large ARA cargoes are absent.”
Meanwhile, high margins for diesel and jet fuel — supplies of which are running shorter as a result of the effective closure of the Strait of Hormuz — are incentivizing refiners to produce more of those fuels instead of gasoline. U.S. gasoline exports have also remained elevated as foreign buyers snap up barrels that might otherwise be delivered to domestic markets. And U.S. demand for gasoline remains “resilient,” according to the note.
In the most extreme case, in which supply constraints continue an additional one or two months, stockpiles could fall as low as 190 million barrels by the end of August, according to the note. That would send the margin for gasoline against Brent crude in July near $45 to $50 a barrel.
Still, a full reopening of the strait would bring stockpiles closer to normal ranges — and imports could recover regardless as it becomes more profitable to send gasoline from Europe to the East Coast.
