Instead of focusing on boosting the production of gasoline in the summer driving season, this year U.S. refiners will be looking to raise diesel and jet fuel runs, as the global market of distillates is very tight following the Russian war in Ukraine and supports high refinery margins for those products.
Refiners prepare to raise diesel and jet fuel production, whose output is currently more profitable than gasoline, according to analysts and traders who spoke to Reuters’ Laura Sanicola.
It’s not typical for those fuels to yield more for refiners than gasoline, especially just ahead of the summer driving season, but the diesel crunch in Europe due to the sanctions on Russia and the rebounding air travel demand have upended the oil product markets globally.
Europe risks being exposed to a “systemic” deficit of diesel supply that could worsen and even lead to rationing of fuel, the top executives of the world’s largest independent oil traders said last month. Diesel stocks globally were already low even before the Russian invasion of Ukraine, but the shortage has now been exacerbated by the lower global diesel supply from Russia.
According to Russell Hardy, chief executive at the world’s biggest independent trader Vitol, “The thing that everybody’s concerned about will be diesel supplies.”
In aviation fuel supply, the U.S. East Coast is seeing record high jet fuel prices as the global market of distillates is exceptionally tight after the Russian invasion of Ukraine and the return of air travel after the pandemic. Related: Russia’s Oil Production Has Dropped By 10% Since The Start Of The War In Ukraine
The latest four-week average of U.S. total distillate exports show those exports jumped in the four weeks to mid-April to the highest level since the summer of 2019. Distillate fuel inventories in the United States fell by 2.7 million barrels last week and are about 20 percent below the five-year average for this time of year, the EIA said in its weekly petroleum inventory report on Wednesday.
US Gulf Coast (USGC) refining margins against WTI soared in March, posting gains for the fourth consecutive month, OPEC said in its latest Monthly Oil Market Report last week.
“The atypical jump in refining economics was largely impacted by a rise in product exports amid concerns over tightening product availability with regards to sanctions on Russian crude and products, which incentivized some European countries to seek alternative suppliers, mainly for diesel. The bullish market sentiment has apparently widened the arbitrage window and provided a boost in US diesel exports to Europe,” OPEC said.
By Tsvetana Paraskova for Oilprice.com
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