Analysis: Fuel Shortage Risks Grow as Inventories Dwindle


   
Karim Bastati
DTN Analyst

   VIENNA (DTN) -- U.S. refined fuels inventories are set for further declines 
just as demand reaches its seasonal peak this summer, even if the Middle East 
supply squeeze were to get resolved soon. High international demand will 
continue to pull barrels from U.S. inventories onto the export market and will 
compete with domestic demand, carrying the potential for further price hikes.

   The sharp rise in transportation fuel costs since the start of the 
U.S.-Israeli war on Iran -- on highway gasoline prices are up 50%, according to 
Energy Information Administration data -- was driven by more than just soaring 
crude oil prices. The Hormuz supply disruption, aside from affecting millions 
of bpd of refined product flows, forced refiners to slash runs amid the lack of 
feedstock deliveries. In China, a main fuel exporter, crude oil inputs in 
refineries fell to lows last seen amid crashing fuel demand during the 
prolonged COVID lockdown.

   Refined fuels production in the U.S., in contrast, did not encounter 
logistical constraints, given that Middle Eastern crude oil represents less 
than 4% of domestic refiners' diets. Inventories, however, weren't shielded by 
the supply crunch as oil and fuel exports soared to unprecedented levels. 
Refined product exports have been running around 1 million bpd above both the 
pre-war and year-ago pace, accelerating the inventory depletion rate beyond 
typical seasonal patterns.

   Nationwide stockpiles of distillate fuel oil have dwindled almost twice as 
fast as usual this spring, dropping to 102.91 million bbl, 8.5% below the 
five-year average and 1.2% below last year's near-record low levels. Motor 
gasoline inventories have plummeted to 214.2 million bbl, trailing both the 
five-year average and 2025 levels by some 5%.

   The sharp drop in gasoline inventories was also a consequence of refiners 
prioritizing the production of fuels most affected by the supply crisis, 
particularly of middle distillates like diesel and jet fuel. Middle distillate 
cracks are currently around a third above pre-war levels and more than twice as 
high as at the same time last year.

   Despite a year-on-year uptick in refinery utilization, gasoline production 
has over the past four weeks slightly lagged year-ago levels, while production 
of jet fuel and diesel was up 8.4% and 6%, respectively. Exports of these 
products have soared to record levels, up a combined 500,000 bpd from May 2025.

   Price pressure from shrinking inventories and a global fuel supply crunch is 
likely to persist, and may even intensify amid seasonally rising summer demand. 
The EIA forecasts an average retail price of $4.31 for a gallon of regular 
gasoline and $5.36 for a gallon of diesel in the second quarter, up 37.7% and 
32% from Q1, respectively.

   The agency's latest outlook published in early May saw prices ease in the 
third quarter. The underlying model, however, was based on the increasingly 
unlikely looking assumption that flows from the Persian Gulf will gradually 
return in June. Even under this most optimistic scenario, the EIA sees gasoline 
inventories plummet to 212.5 million bbl by the end of September, a forecast 
likely to be revised lower given the faster-than-expected depletion rate of the 
past few weeks.

    

    




(c) Copyright 2026 DTN, LLC. All rights reserved.