The American oil refining business is a national colossus, with almost 130 facilities taking in some 16 million barrels of crude oil per day and turning it into nearly 10 million barrels of gasoline and 5 million barrels of diesel. And unlike some past years, inventories are looking pretty good heading into this summer. While they’re lower than the five-year average, gasoline supplies are still higher than where they were a year ago, and refineries are a ways away from running at their peak capacity. According to the forecasters at GasBuddy, we’re looking at relatively mild summertime prices of around $3.50 to $3.60 per gallon.
The one wild card: weather. About half of America’s refining capacity sits on the Gulf Coast, putting America’s fuel production squarely in the target zone of what could be an especially active hurricane season.
“If you recall 2022, inventories were tight and [refinery] utilization was tight,” explained Patrick De Haan, GasBuddy’s head of petroleum analysis. Gas prices peaked in June of 2022 at slightly over $5 per gallon, according to data the Energy Information Administration’s data, after the Russian invasion of Ukraine sent crude oil prices soaring to more $120 a barrel. “Our head is holding above water now,” he said, because demand is low. “We’re in a much better position going into the start of the summer compared to two years ago.”
Oil prices have largely stayed steady so far this year other than a brief spike in early April, despite continued attacks on shipping by Houthi rebels in Yemen and the ongoing threat of a spiraling regional conflict in the Middle East. The top gas price last month was around $3.67 a gallon, whereas GasBuddy’s range of possible prices for the summer months average closer to $3.60. All things considered, De Haan told me, “we got a little bit of breathing room.”
Morgan Stanley analysts wrote in a note to clients last week that gasoline stockpiles “remain close to the 5-year average level and are not drawing as strongly as usual for this time of year,” which puts downward pressure on prices. U.S. demand is hovering below 9 million barrels these days, which is right about the average demand in 2023, indicating that some consumer weakness may be responsible for relatively mild gas prices.
Weaker-than-expected demand for gasoline would be consistent with other signs of the American consumer being slightly less spendy in recent months. Overall retail sales in April were basically flat from the month before, according to Census Bureau data, and came in lower than economists’ expectations. Sales at gasoline stations were down 0.8% in the first four months of this year compared to the first four months of 2023, despite overall spending going up 3.5% from the same period a year ago.
What can be good for drivers may not be so great for investors and the gasoline complex at large. “It’s undeniable to say that there’s some trouble in gasoline land,” Rory Johnston, a commodities analyst and author of Commodity Context, told me. “In terms of whether it’s supply or demand more broadly, as always, it’s a bit of both.”
Whatever the cause, it will mean less profit for refiners, especially compared to the record outperformance they’ve seen in recent years.
“Gasoline prices and refining margins have come under pressure,” Reuters reported last week, meaning that refineries are making a bit less than before on the difference between crude oil and gasoline prices. Inventories are also being run down more slowly than is normal for the pre-summer season, the report said, “indicating supplies are plentiful, and undermining the bullish case for the fuel.”
And yet if it’s destructive enough, just one hurricane could upend that entire narrative. When Hurricane Harvey parked its torrential rains over Houston in 2017, it took a big chunk of the U.S. refinery complex offline, pushing gas prices up $0.36 in just two weeks.
While the National Oceanic and Atmospheric Administration has yet to release its official hurricane forecast for the year, The Weather Company has predicted that the 2024 season “could be one of the most active on record.” If those hurricanes hit the wrong parts of the Gulf Coast, the expected mild summer for America’s internal combustion-dependent drivers may be blown away.
