OUTLOOK ’19: US gasoline margins depressed, refiners eye foreign markets

HOUSTON (ICIS)–Long supplies of US gasoline have driven margins to five-year lows, but strong production and high refinery operable rates will persist through 2019 as refiners crank out distillate fuels and export markets become even more crucial to refiner profitability.

Gasoline production has outpaced demand and drove inventory levels well above normal, drastically cutting into margins and giving gasoline production an unfavourable outlook. However, strong growth in distillate demand has driven diesel prices higher, offsetting poor gasoline margins.

The following chart shows the spread between US Gulf Coast (USG) unleaded regular gasoline and USG ultra-low sulphur diesel fuel (ULSD).

Refiners that can maximise diesel fuel will also be most advantaged. However, US refineries are primarily tooled to maximise gasoline production but because refiners must produce gasoline to get diesel fuel, gasoline production will remain robust through 2019.

According to the US Energy Information Administration (EIA), US refinery runs will average 17.0m bbl/day, a new record high.

With flattening year-on-year growth in gasoline consumption in the US, US refiners have to look to international shores to find growing demand.

The Mexico market will continue to be a growing destination for US-produced gasoline, heightened by slackening refined fuels production combined with rising demand growth from the Mexican people. Despite ambitions by the country’s newly elected president to boost domestic oil output and curb fuel imports from the US, Mexico will remain an increasingly important destination for US refiners.

Focus article by Steven McGinn

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