EIA: This Week in Petroleum - 22 July 2020 - eng ^{Избранное}

Product crack spreads increase from recent lows but face uncertain demand, high inventories

U.S. gasoline and diesel crack spreads (the difference between the price of crude oil and the wholesale price of the petroleum product, which are used as estimates of refinery margins) diverged sharply in March as the 2019 novel coronavirus disease (COVID-19) spread. As COVID-19 mitigation efforts and travel restrictions were put in place, gasoline demand (as measured by product supplied) fell, pulling gasoline crack spreads down. During the same period, demand for diesel fuel remained relatively strong, which contributed to a sharp increase in diesel crack spreads. In April, diesel yields increased as demand fell, reducing the diesel crack spread, while gasoline demand began to increase. Since then, gasoline and diesel crack spreads in the U.S. Gulf Coast (home to about half of the U.S. refining capacity) have stabilized and moved together (Figure 1). However, high gasoline and distillate inventory levels are putting downward pressure on product prices and the crack spread, and the demand outlook remains uncertain.

Figure 1. Gulf Coast crack spreads

U.S. gasoline inventories increased to a record high of 263 million barrels on April 17. Since then, inventories have fallen somewhat, but as of July 17, inventories were 247 million barrels, 16 million barrels above the previous five-year average (2015-19) for that time of year. The high inventory levels continue to put downward pressure on gasoline crack spreads. Diesel inventories have remained above 170 million barrels for the past eight weeks, reaching a high of 178 million barrels the week ending July 17, 38 million barrels above the previous five-year average.

As gasoline demand began to decline steeply the week ending March 20, falling 8.9% to 8.8 million barrels per day (b/d), inventories grew. Gasoline demand fell 24.6% and 23.9% week-on-week during the next two weeks, respectively, reaching a low of 5.1 million b/d the week ending April 3, the lowest weekly demand in U.S. Energy Information Administration (EIA) data going back to 1991. Distillate demand was relatively strong during this period, remaining within the five-year range until the week ending April 10 (Figure 2). The difference between gasoline and distillate demand in the March�April timeframe contributed to decreasing gasoline crack spreads, while diesel crack spreads increased.

Figure 2. U.S. gasoline (left) and distillate (right) demand

In response to the falling gasoline demand but relatively strong distillate demand, refiners curtailed runs and shifted yields to produce more distillate fuel and less gasoline. Refinery runs fell steeply beginning in late March, reaching a low of 12.8 million b/d the week ending April 17, the lowest level since 2008 (Figure 3). In late April, U.S. refiner yields of motor gasoline fell to a low of 43%, down from the previous five-year average of 51%. Around the same time, refiner distillate yields reached 40%, the highest level in EIA data going back to 2010.

Figure 3. U.S. gross refinery inputs

By early April, however, gasoline and distillate demand patterns had begun to change. Distillate demand dropped below the previous five-year range, and the distillate crack spread fell. Distillate demand fell to 3.0 million b/d the week of May 1, the lowest level since 1996 (four-week rolling average). Gasoline demand fell to 5.3 million b/d the week of April 24, the lowest level in EIA data going back to 1991 (four-week rolling average). Since then, gasoline demand has been generally increasing while distillate demand has varied (Figure 2). Gross inputs into refineries have been generally increasing since the week ending May 8, and refiners have shifted yields back to more gasoline production. The week ending May 29, U.S. refiner yields of motor gasoline surpassed 50% for the first time since March 6.

The increased gasoline demand led to increasing gasoline crack spreads, which overtook distillate crack spreads in late April. The increased gasoline demand and crack spreads supported higher refinery runs and gross inputs into refineries also increased, reaching 14.8 million b/d the week of July 10 before falling slightly the following week. The growth in gross refinery input has slowed, and the past three weeks have been relatively flat, averaging between 14.7 million b/d and 14.8 million b/d. The growth in gasoline product supplied has also slowed, averaging 8.6 million b/d during the past four weeks with relatively little fluctuation (a narrow range of 216,000 b/d, or about 3% of the four-week average). The relatively flat gross inputs and gasoline demand reflect a slowing growth as COVID-19 cases increased and parts of the country reinstated mitigation efforts, highlighting the uncertain demand environment for petroleum products.

Rising gasoline demand and crack spreads have supported higher refinery runs. Since early June, the 3:2:1 crack spread (a method to estimate overall refinery margins based on three barrels of crude oil yielding approximately two barrels of gasoline and one barrel of distillate) increased from 11 cents per gallon (gal) on June 3 to 24 cents/gal on June 23 (five-day moving average). The 3:2:1 crack spread has since declined, falling to 18 cents per gallon on July 21 (Figure 4).

Figure 4. Gulf Coast 3:2:1 crack spread (five-day moving average)

The low crude oil prices seen earlier in the year contributed to declining U.S. crude oil production. Further limiting global oil supply, in April 2020, the Organization of the Petroleum Exporting Countries (OPEC) and partner countries (OPEC+) agreed to further production cuts beginning in May 2020. The relatively low global crude oil supply drove prices up. The price for Louisiana Light Sweet (LLS) crude oil, a key crude oil in the U.S. Gulf Coast, was $12 per barrel (b) on March 30, but the LLS price has remained between $38/b and $43/b since mid-June. Although the crude oil price outlook is highly uncertain, OPEC+ is set to increase production in August, which could put downward pressure on crude oil prices and upward pressure on crack spreads.

U.S. average regular gasoline and diesel prices fall

The U.S. average regular gasoline retail price fell nearly 1 cent per gallon from the previous week to $2.19 per gallon on July 20, 56 cents lower than the same time last year. The Midwest price decreased more than 3 cents to $2.09 per gallon, the Rocky Mountain price fell nearly 1 cent to $2.32 per gallon, and the East Coast price fell nearly 1 cent but remained virtually unchanged at $2.11 per gallon. The West Coast price rose nearly 2 cents to $2.82 per gallon, and the Gulf Coast price rose nearly 1 cent to $1.88 per gallon.

The U.S. average diesel fuel price fell nearly 1 cent from the previous week to $2.43 per gallon on July 20, 61 cents lower than a year ago. The East Coast price declined more than 1 cent to $2.52 per gallon, the Rocky Mountain price declined less than 1 cent to $2.34 per gallon, and the Midwest price fell less than 1 cent but remained virtually unchanged at $2.31 per gallon. The Gulf Coast and West Coast prices were unchanged from the previous week at $2.20 per gallon and $2.95 per gallon, respectively.

Propane/propylene inventories rise

U.S. propane/propylene stocks increased by 2.0 million barrels last week to 82.4 million barrels as of July 17, 2020, 8.5 million barrels (11.5%) greater than the five-year (2015-19) average inventory levels for this same time of year. Midwest, Gulf Coast, East Coast, and Rocky Mountain/West Coast inventories increased by 0.9 million barrels, 0.6 million barrels, 0.4 million barrels, and 0.2 million barrels, respectively.