div classBodysc17zpet90 cdBBJodivpBy Laura Sanicolap
pReuters – Refiners are planning to spend the summer increasing jet fuel and diesel production instead of gasoline, traders and analysts said, favoring what have historically been the least profitable parts of the barrel instead of the most profitable.pdivdivdiv classBodysc17zpet90 cdBBJodiv
pThat is unusual and exemplifies the topsyturvy nature of the global oil markets. Refining crude oil into diesel or jet fuel is currently more profitable than making gasoline due to an inventory squeeze in Europe following sanctions on Russia. p
pNormally, U.S. refiners ramp up gasoline output in the spring and summer to meet drivingseason demand, while profitability for distillates like diesel or jet ebbs. p
pHowever, sanctions on Russian because of the war in Ukraine, pandemicrelated refinery shutdowns that have reduced capacity, and an unexpected surge in natural gas prices have curtailed the volume of fuel refiners can produce, particularly in Europe, which relies on diesel as its primary motor fuel.p
pIn the last two weeks, distillate exports have averaged more than 1.6 million barrels a day, the most since mid2019, according to U.S. Energy Information Administration figures. p
p“The U.S. is now acting as the barrel of last resort for an Atlantic Basin that scrambles to find alternatives to shunned Russian crude oil and petroleum products,” said analysts at Citi in a Wednesday note.p
pThat has boosted profits for U.S.based refiners for distillates. Currently, the profit margin on distillates is nearly 60 a barrel, while the margin to make gasoline is 34. Over the past 10 years, the average at this time of year for distillates and gasoline was 26.24 and 27.48, respectively. GRAPHIC: Refining Margins https:graphics.reuters.comUSAENERGYzgvomlbwevdp
p“U.S. refineries may have little incentive to switch to higher gasoline yields as the differential between RBOB and heating oil remains wide,” Citi wrote.p
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ppRefining margins upended in topsyturvy market: https:fingfx.thomsonreuters.comgfxcezjvqkmjkjvxPasted20image201650485248950.pngp
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ppMISMATCHES AROUND THE NATIONp
pEven as export demand has risen, not all parts of the U.S. are seeing the same benefit. p
pGulf Coast refineries, which account for roughly 45 of the nations refining capacity, are operating at 94 utilization, according to EIA data.p
pHowever, in the Midwest demand from local farmers has been weak due to unseasonably cold weather that has delayed planting season. As of Sunday, planting was 4 complete, below the fiveyear average of 6, according to the U.S. Department of Agriculture. p
p“Its a mismatched market because so many diesel barrels are needed elsewhere in the world and we have too much inland, driving physical prices down,” said one products broker.p
pDistillate stocks in the Midwest, known as PADD 2, are only 0.4 below where they were a year ago, even though nationwide distillate inventories hit lows not seen since May 2008 this week. Chicago ultralowsulfur diesel was trading 21.5 cents per gallon below diesel futures on Tuesday at this time last year, it was 5 to 8 cents above that benchmark. p
pRefiners have also increased jet fuel production as air travel has rebounded from a long, pandemicinduced slump. p
pOn the U.S. East Coast, home to some of the worlds busiest airports, jet fuel traded at more than 100 per gallon above Brent crude futures as inventories touched 32year lows. p
pWhether the market is rebalanced will depend on demand. The rising cost of diesel and gasoline has started to reduce U.S. consumption, as demand for both fuels has recently dipped below the fiveyear average – though not by much.p
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pp Reporting by Laura Sanicola Editing by Leslie Adlerp
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