Analysis: Even Minor U.S. Outages Could Send Gas Soaring


   
Karim Bastati
DTN Analyst

   VIENNA (DTN) -- U.S. fuel prices have been on a steep rise so far this 
month, with the national average for a gallon of regular gasoline topping the 
$4-mark this week for the first time in five weeks. The latest jump came on the 
back of surging crude prices amid amassing oil supply disruptions, all while 
fuels supply and inventories remained tight.

   Front-month RBOB futures closed at $3.4964 gallon Thursday (7/23), having 
risen by more than 20% so far this month. DTN data showed the national gasoline 
rack average rising to $3.6837 gallon during this time, up nearly 14%. Retail 
prices for regular gasoline on Thursday averaged $4.091 gallon, according to 
AAA.

   Record-high product cracks have had U.S. refiners operating at near-maximum 
capacity for weeks. Energy Information Administration data showed nationwide 
utilization rates averaging 96.2% over the past four weeks. During this period, 
they processed 17.1 million bpd of crude oil, up 128,000 bpd year-on-year and 
the seasonally most since 2019, when net inputs were some 250,000 bpd higher. 
Back then, however, domestic refining capacity was 800,000 bpd above today's 
levels.

   Sustained operations near maximum capacity and maintenance deferments have 
boosted outage risks. What's more, the lack of spare fuels production capacity 
means that any supply disruption will be hard to replace. These factors served 
as yet another catalyst for the surge in refined product prices, with 
consequently rising margins ironically incentivizing refiners to continue to 
run their units as hard as possible.

   Despite the breakneck refining pace, gasoline inventories continued to 
decline amid the seasonal rise in domestic demand, higher international buying 
interest, and refiners opting to produce more diesel and jet fuel at the 
expense of gasoline output. Nationwide gasoline stockpiles have been hovering 
near the lowest seasonal levels in 14 years. The lack of cushions compounds the 
impacts of any supply disruption on both prices and fuel availability.

   In addition to the elevated outage risk from the persistently high strain on 
their units, U.S. refiners will also have to deal with weather-induced 
disruptions. DTN forecasts below-average storm activity this hurricane season 
-- but given the already strained supply situation, the lack of spare capacity 
and low inventories, it may take much less than a hurricane making landfall 
along the Gulf Coast refining hub to send prices at the pump soaring.




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