LONDON (Reuters) - U.S. petroleum refiners are dealing with the problem of excess fuel stocks by only slowly ramping up their crude processing, even as lockdowns are eased and fuel consumption recovers.
Over the last two months, petroleum consumption has been rising strongly as the United States emerges from the most severe measures imposed to control the spread of the coronavirus.
By restraining output, refiners are whittling away excess inventories built up at the height of the economic shutdown.
By last week, U.S. oil consumption had recovered to 89% of its average rate at the same point in the previous five years, up from a low of 69% in the first week of April.
The total volume of petroleum products supplied to the domestic market had climbed to 18.3 million barrels per day (bpd) from just 13.8 million bpd in the first week of April.
But recovery remains uneven, with gasoline, hit hard by stay-at-home orders, bouncing back fastest, while business-cycle linked diesel use remains sluggish and jet fuel shows no sign of a comeback.
Gasoline supplied, a proxy for fuel actually used, has been accelerating roughly 5% per week since the start of April, according to weekly estimates prepared by the U.S. Energy Information Administration (EIA). By last week it had recovered to 90% of its prior five-year average, up from just 55% in April (“Weekly petroleum status report”, EIA, June 24).
Diesel supplied was also running at 90% of its prior five-year average, but that represented a weaker and more erratic improvement from its lockdown-low of 70% (tmsnrt.rs/37XCgoU).
Jet fuel supplied, at just 45% of its five-year average, has yet to show a clear, sustained upturn with many flights still cancelled and the remainder carrying reduced loads.
Although consumption has bounced back, refiners are taking a slower approach, with U.S. crude processing 19% below the five-year average last week, only a modest improvement from the lockdown-low of 25% below average.
Crude processing has increased by an average of less than 1% per week over the last 10 weeks, compared with an average weekly increase in consumption of 3% for all products and 5% for gasoline.
The restraint is beginning to pay off, with gasoline and even distillate stocks starting to flatten or fall after rising sharply during lockdown.
Provided refineries hold back, fuel stocks should drop significantly over the next couple months towards more normal levels.
In the short term, crude consumption is likely to be dampened, but once fuel stocks normalise there is likely to be a rapid acceleration in refinery crude intake later in the year.
Refinery restraint will make crude market rebalancing tougher during the third quarter but should help accelerate rebalancing in the fourth quarter and especially in 2021.
(John Kemp is a Reuters market analyst. The views expressed are his own)
Editing by Kirsten Donovan