By Stephanie Kelly
NEW YORK (Reuters) – U.S. fuel prices rose faster than crude oil prices over the past month as the United States shipped more refined products overseas to supply European markets after Russia’s invasion of Ukraine.
Traders say global fuel stocks are unlikely to rise quickly as major producers like OPEC slowly increase production. The tightening in fuel markets is more alarming, they say, as it shows refiners struggling to meet demand even as more crude becomes available thanks to large reserve releases.
“Things are really tight with diesel and global demand,” Aaron Milford, managing director of Magellan Midstream Partners, said in an earnings call on Thursday.
Global inventories of crude, gasoline and other fuels are falling as demand has rebounded to pre-pandemic levels. Supply was further tightened following the invasion of Ukraine and subsequent sanctions imposed on Russia by the United States and its allies.
Washington released millions of barrels from US strategic reserves, helping to control the price of crude. But product inventories continue to decline.
Since the invasion of Ukraine on Feb. 24, U.S. crude futures have risen almost 17%, according to data from Refinitiv Eikon, while U.S. gasoline futures have risen. jumped more than 30% and futures on US heating oil, a proxy for diesel, rose 40%.
“Typically at this time of year, Commodities lead crude oil, but in this case the gap is much wider than normal. This is a sign that the Commodity market is crying out to refiners: ‘Get to work, we need more supply,'” Phil Flynn said. , senior analyst at Price Futures Group.
Inventories are particularly tight for distillates at 105 million barrels, the lowest since April 2008, according to the US Energy Information Administration. Commercial inventories of U.S. crude have been rising since late February due to releases from U.S. reserves.
U.S. exports of refined products have averaged 6.3 million barrels per day (bpd) over the past four weeks, nearly the fastest export rate in U.S. history.
Rising U.S. crude prices were limited by concerns about energy demand during prolonged COVID-19 lockdowns in China.
U.S. crude’s discount to global benchmark Brent narrowed to minus $2.15 a barrel last week, the lowest since November, before widening again. A tighter discount makes US crude less attractive in overseas markets.
Traders say declining refining capacity, particularly on the East Coast, has tightened commodity markets, raising premiums on jet fuel and diesel. East Coast distillate inventories are at an all-time high.
“We really don’t have the capacity (to export more) while not affecting the domestic market,” said Robert Yawger, executive director of energy futures at Mizuho. “We’ve increased refinery utilization, but a lot of that increase is going to the Eurozone, not New Jersey.”
US fuel price gains outpace US crude gains
(Reporting by Stephanie Kelly; Additional reporting by Arathy Somasekhar; Editing by David Gregorio)