Haymaker Daily One energy fallacy after another...
Hello, Haymakers:
Following up on yesterday's Daily on the stealth erosion of global refined product inventories — such as jet fuel and gasoline — the always reliable energy authority, John Kemp, recently published a visual that drives this home. The U.S. has some of the planet's most accurate inventory data and, as you can see below, those have been significantly drawn down for "The Big Three".
[Chart — John Kemp: U.S. inventories of "The Big Three" refined products, the white line a composite of jet fuel, distillate and gasoline]
The white line shown above is a composite of jet fuel, diesel (distillate) and gasoline. Quoting London-based Mr. Kemp: "Refineries have prioritised production of jet fuel and diesel at the expense of gasoline to relieve the worldwide shortage of middle distillates. But the lack of spare capacity has meant gasoline stocks have come under intense pressure."
As a result, American refined exports to the rest of the world have risen to a record rate. This high demand for U.S. refined products calls into question the prevalent belief that there has been significant demand destruction for oil-related fuels.
[Chart — U.S. refined-product exports at a record rate]
He also notes the continuing closures of refineries in California, with two large facilities in the state, Los Angeles and Benecia, shuttered since last fall. This reduced production capacity has led to almost 20% of its gasoline consumption now being imported, a number that is likely to rise as more in-state refineries are taken off-line. (This assumes that offshore suppliers have the ability to deliver.) Ominously, Chevron is vectoring to close its last two California refineries.
Aggravating the situation, the Asian countries that have supplied the Golden State's gasoline imports are facing a serious shortage of refining capacity themselves and are highly likely to restrict shipments across the Pacific. This raises the possibility of 1970s-like gas lines before long unless the U.S. limits overseas shipments and redirects those to California. Doing so, however, would damage America's reputation as a reliable supplier to the rest of the world.
To cope with this situation, the U.S. refining complex has been running flat out. This accounts for the spike in refinery profit margins to what are essentially tied for the highest of the 21st century.
[Chart — refinery profit margins, essentially tied for the highest of the 21st century]
It's also a key reason why profits at companies like Chevron have exploded, incurring the wrath of President Trump. No matter which party is in the White House, the oil industry continues to be a recurring scapegoat, despite that oil prices have barely risen over the last 20 years (and, adjusted for inflation, are down by roughly 50%).
The Haymaker Team