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U.S. is making most fuel since 2019, but it's still not enough
Global supply disruptions and export demand support elevated refinery utilization rates
A refinery in Port Arthur, Texas, in April. (Mark Felix/Bloomberg)
Key Takeaways:
- U.S. refiners processed 17 million barrels of crude daily last week, the highest weekly average since September 2019, as they sought to meet fuel demand.
- Tight global fuel supplies, refinery disruptions and strong export demand have kept gasoline and diesel markets constrained despite near-record U.S. refining activity.
- U.S. crude inventories fell more than 7 million barrels, while gasoline and distillate stockpiles remained seasonally low, signaling continued supply concerns.
U.S. refiners are turning crude oil into products like gasoline and diesel at a pace not seen since before the COVID-19 pandemic, but even that is unlikely to rein in soaring prices soon amid a historic fuel crunch.
Refineries last week processed 17 million barrels of crude oil a day, according to the Energy Information Administration, in a full-throttle effort to meet global and domestic fuel demand. That’s the highest weekly average since September 2019.
In the Midwest, refineries processed the most crude on record in a week.
Global fuel supplies are perilously tight, encouraging refiners to go all-out to capture exceptionally strong profit margins, said Matt Smith, director of commodity research at Kpler. Fuel markets have been left with little cushion after outages stemming from wars in Ukraine and Iran.
“Supersized refining margins continue to encourage refiners to run as hard as possible, resulting in a solid draw to crude inventories,” Smith said.
Despite the surging processing rates, U.S. consumers aren’t likely to see much relief at the pump soon. U.S. fuel markets still look tight, with gasoline and diesel futures rising. That means further headaches for U.S. drivers staring down $4-a-gallon gasoline and another wrinkle for central bankers desperate to tamp down inflation.
But the impacts of the push are visible in U.S. commercial crude stockpiles, which dipped to their lowest since 2018, falling by more than 7 million barrels, the EIA data indicated. It’s another sign that oil-market buffers are thinning as tensions in the Iran war simmer.
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Stockpiles at Cushing, Okla. — the U.S.’s commercial crude storage hub — are sitting below 20 million barrels, a level widely considered the operational minimum. And the premium for buying a barrel of crude oil for delivery in September versus October rose further July 29, indicating market concerns about the availability of immediate supply.
To be sure, global crude oil markets have proven remarkably resilient this year, but the picture for fuels is far more fragile.
Russia, reeling from Ukrainian drone strikes on its refineries, has banned exports of gasoline through year-end and is eyeing another month of an existing diesel ban. And in the Middle East, refiners are grappling with an unclear shipping picture in the Strait of Hormuz. Profit margins for diesel in the U.S. sit near record highs.
Meanwhile, countries from Europe to South America are scrambling for fuel supplies, sending U.S. exports surging. That’s slowing American inventory rebuilding despite near-record refinery runs. Gasoline exports remain around seasonal averages, and exports of distillate fuels like diesel rose to their second-highest weekly level on record.
Gasoline inventories in the U.S. remained effectively unchanged last week — their lowest seasonally since 2012. And while distillate fuel supplies rose 1.1 million barrels, the comparatively lackluster rate of additions means that U.S. stockpiles are now at their lowest for this time of year since 2000.
