Gasoline prices in the US could climb above $6 this summer because the level of gasoline in storage has dwindled just as more Americans take to the road, according to Natasha Kaneva, head of global commodities research at JP Morgan,
Prices at the pump are already at record highs, averaging more than $4.50 per gallon for the first time ever. This could be just the beginning of the increases.
There are several reasons that gasoline could go even higher. Russia’s invasion of Ukraine has led to sanctions that have decreased Russia’s oil and refined fuel exports, leading to an overall decline in supply around the world. US refiners have worked to fill the gap by shipping more US diesel and gasoline abroad. Refiners have been particularly incentivized to make diesel and ship it to Europe, because prices in Europe are soaring as countries attempt to dive from Russian fuel. But those exports are displacing the production of gasoline for domestic use.
In addition, US refiners are shipping about 100,000 more barrels of gasoline per day to Mexico and other nations than they have done in past years, further depleting supplies. In the past five years, the US has averaged about 65 million barrels of gasoline in storage in mid-May. This year, there are fewer than 55 million barrels available. Refiners like Marathon Petroleum (ticker: MPC) and Valero (VLO) have been making wide margins.
“Typically, refiners produce more gasoline ahead of the summer road-trip season, building up inventories,” Kaneva wrote. “But this year, since mid-April, US gasoline inventories have fallen counter seasonally and today sit at the lowest seasonal levels since 2019. Gasoline balances on the East Coast have been even tighter, drawing to their lowest levels since 2011.”
To motivate refiners to make more gasoline instead of diesel, prices will have to rise. That already appears to be happening. Diesel was trading at a $1.63 per gallon premium to gasoline near the end of April–the highest premium ever–but gasoline is now trading at a 15-cent premium to diesel.
Kaneva made some projections for the summer and found that at the peak, Americans will be using 9.7 million barrels a day of gasoline, while there’s likely to be 9.1 million barrels of gasoline available for consumption. The 600,000 barrel per day draw on inventories would be about 200,000 more than usual, and leave the US with the lowest inventories since the 1950s by August. “Regression analysis on the relationship between gasoline inventory changes and NYMEX gasoline prices suggests that a drop of about 60 [million barrels] in gasoline stocks between now and August would result in a 37% increase in prices, which translates to a $6.20/gal average US retail price,” she wrote.
What could change the picture? If refineries started pumping out more gasoline in a hurry or started limiting exports, prices would likely come down. Kaneva doesn’t mention a US recession in the note, but that might do the trick too. Consumers should brace themselves, regardless.
Write to Avi Salzman at [email protected]
Credit: www.marketwatch.com /