“We believe that at least 3.5 million bpd of supply destruction has occurred,” said Bank of America Global Research in their June 16 weekly industry overview. “Including 1.5 million bpd of net refinery closures, 1 million bpd of fewer Russian exports. 500,000 bpd fewer China fuel exports and 500,000 bpd of gas to oil switching.”
While IEA points to an expected 1.9 million bpd in new refinery capacity in 2023 led by startups in Africa, the Middle East and Asia, Bank of America notes new refining capacity in China is integrated more closely with petrochemical production with a roughly 50% split between petrochemical and transportation fuels output. Analysts with the bank also note potential delays with some projects amid cost overruns and financing challenges at planned refinery additions in Nigeria and Mexico.
In the United States, Marathon Petroleum is on course to increase refining capacity by 40,000 bpd in 2023, and ExxonMobil’s expansion at Beaumont will bring an additional 250,000 bpd of new capacity. Renewable diesel production will also begin to come online as soon as this year but won’t be enough to fill the hole of lost refining capacity, while LyondellBasell said it will shut its 263,776-bpd oil refinery in Houston on Dec. 31, 2023. The refinery last week experienced an outage at one of its two coker units, which could accelerate its closure as LyondellBasell won’t invest the huge sums for repairs.
US refiners have run their refineries at 91.6% of capacity in the second quarter through June 10, and at 93.4% of capacity during the most recent four weeks, according to the latest data from the Energy Information Administration. Despite the strong run rate, gasoline inventory was standing nearly 27 million bbl or 11% below the three-year average on June 10, and distillate fuel stocks were 36.455 million bbl or 25% less than the historic average. EIA data shows commercial crude oil inventory was 77.4 million bbl or 15.6% below the three-year average on June 10 despite heavy drawdowns from the US Strategic Petroleum Reserve. So far in 2022, 82.082 million bbl of crude oil has been drawn down from strategic reserves in the United States.
These factors have pushed fuel prices to record highs, with the US average for regular grade gasoline sold at retail outlets at or above $5 gallon for seven consecutive days through June 17 before easing to $4.968 gallon Tuesday, according to AAA. The travel agency indicates the national average for retail diesel fuel is $5.812 gallon Tuesday, edging off a $5.816 record high reached on Sunday.
Despite gasoline prices at historic highs, AAA projects record travel in the United States for the upcoming July 4th holiday, with 42 million people expected to hit the roads over the holiday compared with the previous record high in 2019 at 41.5 million. When including air travel, 47.9 million people are expected to travel 50 miles or more during the Independence Day holiday, with the record reached in 2019 at 49 million.
In early trading, NYMEX July West Texas Intermediate futures were up about $1.64 at $111.20 ahead of the contract’s expiration Tuesday afternoon, with August WTI futures holding a $1.20 discount to the expiring contract. ICE August Brent futures were up nearly $1.50 at $115.60 barrel (bbl). For oil products, NYMEX July RBOB futures advanced 12.95 cents to $3.9225 gallon, and July ULSD futures were nearly 12 cents higher at $4.4580 gallon.
Brian L. Milne can be reached at email@example.com