Low U.S. Gasoline Demand Is Making Gasoline Much less Worthwhile, Lowering Crack Spreads

Knowledge supply: Bloomberg L.P. Word: RBOB=reformulated blendstock for oxygenate mixing

Low gasoline demand together with the seasonal swap to winter-grade gasoline has made gasoline much less worthwhile to provide, decreasing the distinction between gasoline blendstock and crude oil costs to multiyear lows in October 2023.

The crack unfold is the distinction between the worth of a wholesale petroleum product and the crude oil worth, and it could actually function an indicator of refining earnings. The crack unfold between New York Harbor RBOB and Brent crude oil is useful in understanding the profitability of U.S. gasoline refining as a result of it’s the distinction between the worth of the petroleum element of gasoline utilized in many elements of the USA (RBOB) and Brent crude oil.

The RBOB-Brent crack unfold decreased in August after reaching a summer season excessive of 94 cents per gallon (gal) on July 27, ending the month at 70 cents/gal. The crack unfold subsequently fell in September, ending the month at 17 cents/gal. In October, this crack unfold averaged 16 cents/gal, the bottom month-to-month common since December 2020.

One cause gasoline crack spreads have decreased not too long ago is low U.S. gasoline consumption. Primarily based on weekly estimates in our Weekly Petroleum Standing Report (WPSR), U.S. gasoline consumption, measured as product equipped, has been lower than its lows each in 2022, when demand was down after months of excessive summer season gasoline costs and inflation, and in 2020, when responses to the COVID-19 pandemic lowered demand. Some elements that could be decreasing gasoline demand this yr embody increased gasoline costs, much less discretionary spending because of persistently excessive inflation, and improved gasoline effectivity of autos.

One other issue affecting crack spreads is above-average U.S. gasoline manufacturing. Our WPSR estimates recommend that U.S. refinery runs this yr have been above common in September and have been close to common in October. Regardless of the low crack spreads, refineries have continued to provide gasoline at a mean charge as a result of the opposite merchandise they produce alongside gasoline have remained sufficiently worthwhile to proceed gasoline manufacturing regardless of low demand.

Low gasoline demand and comparatively common refinery manufacturing have elevated U.S. gasoline inventories. As of October 13, U.S. gasoline inventories have been up 4% from the start of September, totaling 223.3 million barrels.

Principal contributor: James Troderman

Article first revealed on U.S. EIA’s At present in Vitality weblog.