NEW YORK (AFP) – Only time will tell how much record United States (US) prices at the pump will dent driving demand this summer, but don’t expect a significant increase in gasoline supply from American refineries.
The reason: Several US gasoline refineries have shut down in recent years, or been converted to make other fuels, crimping America’s refining capacity and exacerbating the hit from high crude oil prices in the current energy crunch.
US refineries operated at 93.2 per cent last week, the loftiest level since December 2019 and an exceptionally high rate for a season normally associated with plant maintenance.
It all points to a stressed US energy system ahead of the summer driving season, which kicks off this weekend with the Memorial Day holiday.
“We’re set for failure,” said Robert Yawger an analyst at Mizuho Securities. “Basically, we’re set for high prices, increasing inflation, and it doesn’t bode well.”
But limited refining capacity is also a global problem, according to a note from the Eurasia Group that described a tight fuel market with little relief in site.
“Increased demand is outstripping both storage and production capacity, leading to shortages,” Eurasia Group said.
“Right now, demand is drawing down that storage much faster than it can be replaced, depleting inventories and driving refined product prices higher. While International Energy Agency data from this week shows global refinery throughput capacity increasing, it still remains below pre-pandemic levels.”
Besides lifting crude prices, the Ukraine invasion has also pinched supplies of some refined products exported from Russia, especially low-quality gasoil.
Gasoline prices in the US have soared more than 70 per cent in last year to record levels, nationally averaging about USD4.60 per gallon. Analysts at JPMorgan Chase believe prices go higher still this summer, surpassing USD6.00 a gallon.
The number of active US refineries has fallen 13 per cent in the last decade and now stands at the lowest level in the modern era.
The list of closures includes the Philadelphia Energy Solutions plant, which had been the largest in the northeastern US prior to being shuttered in June 2019 following an explosion.
