Release date: November 15, 2018 | Next release date: November 21, 2018
While current U.S. Gulf Coast diesel crack spreads remain high, gasoline crack spreads virtually disappear
Gasoline crack spreads (the price difference between crude oil and gasoline) at key refining locations across the globe have fallen recently, while diesel crack spreads have remained relatively high. In the United States, gasoline crack spreads are declining not only because demand for gasoline has fallen more rapidly than what is seasonally normal, but inventories have also remained high. The crack spreads in the Amsterdam-Rotterdam-Antwerp (ARA) region of Europe and in Singapore, two global refining and distribution hubs, suggest markets in these regions are experiencing similar trends (Figure 1).
The January-October average price for Brent crude oil was $1.25 per gallon (gal) in 2017 and increased by $0.49/gal to $1.74/gal in 2018. During this period, gasoline crack spreads in these regions declined while diesel crack spreads increased.
The average gasoline crack spread from January–October in the U.S. Gulf Coast (calculated by subtracting the price of Brent from Gulf Coast gasoline prices) was $0.09/gal lower at $0.22/gal in 2018 compared with the same period 2017. Crack spreads in the major refining centers of ARA and Singapore also fell during the same period, falling $0.09/gal to $0.16/gal and $0.08/gal to $0.16/gal, respectively. Recent price declines in each region have been even more pronounced, and gasoline crack spreads in each region were at least briefly negative (Figure 2). U.S. market trends of falling gasoline demand, high gasoline inventories, and high refinery runs can explain the recent drop in U.S. gasoline crack spreads and are likely indicative of wider global trends.
High levels of diesel demand in the United States have supported diesel crack spreads and have given refiners an incentive to run despite falling gasoline demand and low gasoline crack spreads. U.S. diesel demand, as measured by product supplied, has been near the top of its five-year (2013–2017) range for most of the year. Although diesel product supplied fell close to its five-year average from June through August, it has since climbed, and weekly diesel product supplied was greater than the previous five-year maximum for the entire month of October. Similarly, U.S. gasoline product supplied has been near the top of the five-year range for most of the year, but it has dropped relatively rapidly since September and is currently close to its five-year average. This trend has put downward pressure on gasoline prices and crack spreads.
Low U.S. distillate inventories are supporting diesel prices, while high gasoline inventories are driving the gasoline prices lower. From January through October 2018, U.S. distillate inventories averaged 128.6 million barrels and were lower than the five-year average for all but four weeks in February and March. The lower-than-average distillate inventories are putting upward pressure on diesel prices. Conversely, U.S. gasoline inventories averaged 238.0 million barrels during the same period and have been more than their five-year average for all but one week in 2018 (Figure 3). The higher-than-average gasoline inventories are putting downward pressure on gasoline prices.
Strong refinery runs in the United States, driven by high levels of diesel demand, combined with the recent fall in gasoline demand have contributed to high gasoline inventories and put downward pressure on gasoline crack spreads. Net production of finished motor gasoline averaged nearly twice as much as distillate from January through October 2018, which is normal compared with the five-year average. Through October, the four-week average U.S. gross refinery input in 2018 has been greater than the upper limit of its five-year range for all but seven weeks. As a result, net production of gasoline and distillate have been near or more than the top of their five-year ranges for most of 2018.
U.S. refiners appear to be adjusting to current crack spreads by producing more distillate and less gasoline. In May 2018, refinery yields of gasoline fell lower than the five-year average for the first time since 2015. In August 2018, the latest month for which data are available, gasoline yields were more than 0.4 percentage points lower than the five-year average and distillate yields were nearly 0.3 percentage points higher than the five-year average. This result is similar to the trend to optimize U.S. refineries to produce distillate fuel that occurred between 2011 and 2012. The shift in U.S. refinery yields could signal the beginning of a global trend toward producing more distillate and less gasoline.
U.S. average regular gasoline and diesel prices decrease
The U.S. average regular gasoline retail price decreased nearly seven cents from last week to $2.69 per gallon on November 12, 2018, up nine cents from the same time last year. Midwest prices fell more than nine cents to $2.51 per gallon, Gulf Coast prices decreased nearly seven cents to $2.39 per gallon, East Coast prices fell nearly six cents to $2.62 per gallon, West Coast prices decreased nearly five cents to $3.40 per gallon, and Rocky Mountain prices fell more than four cents to $2.89 per gallon.
The U.S. average diesel fuel price decreased 2 cents from last week to $3.32 per gallon on November 12, 2018, 40 cents higher than a year ago. West Coast prices fell nearly three cents to $3.81 per gallon, Midwest and Gulf Coast prices each decreased more than two cents to $3.26 per gallon and $3.09 per gallon, respectively, Rocky Mountain prices fell two cents to $3.38 per gallon, and East Coast prices fell nearly two cents to $3.31 per gallon.
Propane/propylene inventories decline
U.S. propane/propylene stocks decreased by 0.8 million barrels last week to 83.8 million barrels as of November 9, 2018, 0.3 million barrels (0.3%) lower than the five-year (2013-2017) average inventory level for this same time of year. Gulf Coast and Midwest inventories decreased by 0.8 million barrels and 0.5 million barrels, respectively. East Coast inventories increased by 0.5 million barrels and Rocky Mountain/West Coast inventories increased slightly, remaining virtually unchanged. Propylene non-fuel-use inventories represented 4.7% of total propane/propylene inventories.
Residential heating oil and propane prices remain flat
As of November 12, 2018, residential heating oil prices averaged almost $3.35 per gallon, less than 1 cent per gallon lower than last week’s price but almost 55 cents per gallon higher than last year’s price at this time. The average wholesale heating oil price for this week is almost $2.28 per gallon, virtually unchanged from last week but 25 cents per gallon higher than a year ago.
Residential propane prices averaged $2.42 per gallon, virtually unchanged from last week and almost four cents per gallon higher than a year ago. Wholesale propane prices averaged nearly $0.82 per gallon, almost 6 cents per gallon less than last week and nearly 27 cents per gallon lower than a year ago.
For questions about This Week in Petroleum, contact the Petroleum Markets Team at 202-586-4522.
Retail prices (dollars per gallon)
| Retail prices | Change from last | ||
|---|---|---|---|
| 11/12/18 | Week | Year | |
| Gasoline | 2.686 | -0.067 | 0.094 |
| Diesel | 3.317 | -0.021 | 0.402 |
| Heating Oil | 3.349 | -0.007 | 0.546 |
| Propane | 2.421 | 0.002 | 0.039 |
Futures prices (dollars per gallon*)
| Futures prices | Change from last | ||
|---|---|---|---|
| 11/09/18 | Week | Year | |
| Crude oil | 60.19 | -2.95 | NA |
| Gasoline | 1.621 | -0.087 | NA |
| Heating oil | 2.173 | 0.000 | NA |
| *Note: Crude oil price in dollars per barrel. | |||
Stocks (million barrels)
| Stocks | Change from last | ||
|---|---|---|---|
| 11/09/18 | Week | Year | |
| Crude oil | 442.1 | 10.3 | -16.9 |
| Gasoline | 226.6 | -1.4 | 16.2 |
| Distillate | 119.3 | -3.6 | -5.5 |
| Propane | 83.760 | -0.768 | 9.080 |