Insight: Strong Growth this Summer but Risks Multiply

Transport fuel demand is projected to grow by 5 million b/d between last month’s low and August, although there is significant downside risk to the forecast. While a similarly strong demand increase occurred last year, the market has less of a buffer this time around because of low product stocks, reduced spare refining capacity, and uncertainty about Russian product exports.

Global Gasoline Outlook: Gasoline Rally Takes Over Factors affecting the diesel market are also impacting gasoline. The difference is that gasoline is heading into its peak summer driving season. The summer should remain tight barring a major price effect and recession. Even so, our outlook does not have US retail gasoline prices surging to $6 or $7/gallon; we have prices near $5/gallon early summer, which is still at record highs.

Global Distillate Outlook: Diesel Unable to Avoid the Summer Heat Refining capacity cuts are a major factor behind the drop in distillate stocks and current tightness in the market. The summer will remain challenging as new capacity will not come online until the second half of 2022 and 2023. A rebalancing of Russian diesel trade should also help beyond the summer, as will the return of Chinese exports. But this still means that distillate stocks will not rebuild this summer.

Global Fuel Oil Outlook: Russian Exports to Asia to Rise Russian fuel oil exports to the west are declining significantly, driven by official US and UK sanctions as well as by self-sanctioning among European buyers. However, Asian buyers are likely to be attracted by heavily discounted Russian products over the next several months, aligning with rising seasonal demand in Southwest Asia in the summer.

Price Outlook: Gasoline Soars, with NYH at the Forefront Gasoline cracks are surging just as the rally in diesel spreads begins to ease. This should incentivize refiners to maximize gasoline instead of diesel yields ahead of the summer driving season.

Product Inventories: Diesel Lacks Inventory Buffer Product inventories continued to fall in April, bringing total stocks down to 2.5 billion barrels. Distillate stocks remain very low, and gasoline stocks have also been drawing of late. Rebuilding inventories will be difficult in the coming months due to the shortfall in Russian exports, limited spare distillation capacity, and seasonal increase in transport fuel demand.

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