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EIA: high refinery margins to contribute to increased fuel production

Published by , Editorial Assistant
Hydrocarbon Engineering,

In the EIA's June 2022 Short-Term Energy Outlook (STEO), it was forecasted that US refinery utilisation will be relatively high this summer in response to strong wholesale prices for petroleum products, such as diesel and gasoline, which have increased more than the price of the crude oil used to make them.

The price difference between the price of crude oil and the wholesale price of a refined petroleum product reflects the value of refining crude oil. This difference, known as the crack spread, can indicate refining margins and profitability. Crack spreads for both diesel and gasoline increased in the first several months of 2022.

Gasoline and diesel prices and crack spreads are well above historical averages in response to several factors including:

  • Low inventories for both petroleum products in the US and globally.
  • Fuel demand increases to near pre-pandemic levels.
  • Relatively low refinery production of both fuels compared with pre-pandemic levels.
  • Reduced petroleum product exports from Russia.

In response to these high prices, it is expected that refinery utilisation will reach a monthly average level of 96% twice this summer, near the upper limits of what refiners can consistently maintain. Refinery utilisation is expected to average 96% in June, 94% in July, and 96% in August.

We estimate US refinery inputs will average 16.7 million bpd during the second and third quarters of 2022. This average is lower than the 2019 refinery inputs average of 17.3 million bpd despite high utilisation rates because of reductions in refinery capacity since early 2020. US refinery capacity has fallen by almost 1.0 million bpd since early 2020 because several refineries were closed or converted.

It is expected that wholesale prices for gasoline and diesel will begin decreasing in 3Q22, as refinery production increases. Despite the forecast price decline, it is expected that wholesale fuel prices will remain well above previous years through the summer, based on higher crude oil prices as well as the ongoing impact of low global inventories. Low international inventories are likely to face additional tightness in response to the recently announced European ban on Russia's energy imports.

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