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EIA: High gasoline inventories help drive US refining margins to five-year lows

Flattening year-over-year growth in gasoline demand in the United States, combined with high levels of refinery output, have contributed to low or negative motor gasoline refining margins for refiners along the East and Gulf Coasts, according to the US Energy Information Administration (EIA).

Gasoline refining margins—the difference between the spot price of gasoline and the Brent crude oil spot price—have been on a downward trend since August, and these margins have been at some of their lowest October and November levels in the past five years. At the same time, strong growth in distillate demand has driven increased distillate prices and refining margins.

This combination of low gasoline and high distillate refining margins may signal a shift by refiners to maximize diesel fuel production instead of gasoline production, EIA said. The crack spreads in the Amsterdam-Rotterdam-Antwerp (ARA) region of Europe and in Singapore, two global refining and distribution hubs, suggest markets in these regions are experiencing similar trends.

Crude oil processed through a US refinery typically yields about twice as much motor gasoline as distillate fuels. As a result, although gasoline margins have been low recently, refiners cannot completely stop making gasoline in favor of other petroleum products, such as distillate. High refinery runs (driven by increased distillate demand) combined with lower demand for gasoline contributes to the high gasoline inventory levels, which have been higher than their recent five-year range since mid-August.

Higher gasoline prices in 2018 have contributed to flattening S gasoline demand growth. Combined with increased levels of refinery output driven by strong demand for diesel fuel, gasoline production has outpaced demand, and inventories have increased beyond their normal seasonal levels, lowering gasoline prices and, as a result, gasoline margins.

Through the first three weeks of November, estimated monthly gasoline consumption (which EIA measures by proxy as product supplied) averaged 9.2 million barrels per day (b/d)—a decrease of 262,000 b/d from November 2017. Conversely, US distillate fuel oil product supplied increased 216,000 b/d through the first three weeks of November, largely because of economic activity and increased freight and trucking activity.

High levels of US gasoline production in 2018 have outpaced gasoline consumption growth in 2017, leading to average inventories in November that are 14.8 million barrels higher than at the same time in 2017. Conversely, inventories of distillate have fallen in November and are 5.8 million barrels lower than at the same time in 2017.

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