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EIA: global gasoline crack spreads fall amid lower US demand

Published by , Editorial Assistant
Hydrocarbon Engineering,

The EIA has reported that low gasoline demand and the switch to winter-grade gasoline pushed the spread between gasoline blendstock and crude oil prices to multiyear lows in early October 2023.

The New York Harbor RBOB-Brent crack spread measures the difference in price between the petroleum component of gasoline used in many parts of the US and the price of Brent crude oil. This measure serves as an indicator of gasoline market supply and demand conditions.

After reaching a summer high of 94 cents/gal on 27 July 2023, the RBOB-Brent crack spread decreased in August 2023, ending the month at 70 cents/gal. The crack spread subsequently fell by 53 cents/gal in September 2023, ending the month at 17 cents/gal. So far in October, the crack spread has averaged 16 cents/gal, and if it remains about the same through the end of the month, it would be the lowest monthly average since December 2020.

One reason gasoline crack spreads have decreased recently is that US gasoline inventories have increased as US gasoline demand has declined. As of 13 October 2023, US gasoline inventories were at 223.3 million bbl, an 8.6 million bbl increase (4%) from 214.7 million bbl on 1 September 2023. In each of the previous five years (2018–2022), US gasoline inventories decreased during the same six-week period from the first week of September through the second week of October, averaging a draw of 4.6 million bbl.

US gasoline inventories have been growing faster than usual because of low gasoline demand and relatively high refinery runs. Based on weekly estimates in the EIA's Weekly Petroleum Status Report (WPSR), US gasoline consumption, measured as product supplied, has been below the low levels seen both in 2022, when demand was down after months of high summer gasoline prices and inflation, and in 2020, when responses to the COVID-19 pandemic reduced demand. As of 13 October 2023, the four-week rolling average for gasoline consumption was 8.5 million bpd, 5% less than the five-year average and 8% below 2019 pre-COVID consumption. Some factors that may be contributing to lower gasoline demand than in previous years include higher gasoline prices, reduced discretionary spending due to persistently high inflation, and improved fuel efficiency of vehicles.

Another reason gasoline crack spreads have decreased significantly is the switch to winter-grade gasoline. Motor gasoline is a combination of different components – such as reformate, alkylate, and aromatics – that can be produced from different petroleum refining processes. Different proportions of each component are used to meet varying product specifications by season and region, including formulations to reduce pollutants (such as sulfur and benzene) and specifications related to the fuel’s volatility (rate of evaporation) and octane rating. Because evaporative emissions are lower in cooler weather, octane specifications for winter-grade gasoline can be met using less expensive and more volatile blending components, such as butane.

In 2023, the switch to blending butane and other winter-grade components reduced refiners’ costs more than usual because summer-grade blending components were more expensive. These elevated costs were partially responsible for high gasoline prices in summer 2023, and therefore, the shift away from those blending components in September 2023 contributed to a sharper decline in gasoline production costs.

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