The BIG PROBLEM for the U.S. Refining Industry is that domestic demand for gasoline and jet fuel have fallen drastically while diesel consumption…
In just two short weeks, U.S. gasoline product supplied to the market fell 32%. The last time weekly gasoline supplies were at this level was more than 30 years ago. Unfortunately, the continued lockdown of a large part of the country will negatively impact the gasoline supply market for the next several months.
When the EIA, U.S. Energy Information Agency releases its weekly supply data over the next few weeks, I believe the motor gasoline supplied to the market will decline significantly. According to the EIA, finished motor gasoline product supplies fell to 6.6 million barrels per day (mbd) on March 27th versus 9.7 mbd reported on March 13th:
As we can see in the chart above, finished motor gasoline product supplies fell off a cliff during the week of March 27th. Typically, U.S. gasoline demand rises toward the end of March and early April. The average gasoline product supplied for the past three years during this week was 9.3 mbd.
Regardless, I wouldn’t be surprised to see U.S. gasoline product supplies to fall to 5 mbd or lower in the next 2-4 weeks. The BIG PROBLEM for the U.S. Refining Industry is that domestic demand for gasoline and jet fuel have fallen drastically while diesel consumption remains relatively strong. Why? The Trucking, Rail, and Shipping Industries that use diesel are still keeping quite busy.
So, over the next few months, gasoline and jet fuel inventories will continue to increase while diesel stocks are drawn down. This is due to the limited amount of diesel that can be refined from a barrel of oil. Here is a breakdown of the different petroleum products from a typical barrel of oil:
When the U.S. Refining Industry is forced to cut back on its crude oil inputs, then it will also be cutting back on diesel supplies at a time when demand remains strong. So, gasoline and jet fuel inventories will increase as diesel stocks deplete. This will be another major problem pushing up the price of diesel over the next several months.
We have no idea of the tremendous damage taking place in the supply chains. I will be posting more articles and videos on this shortly.
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