U.S. motorists face a repeat of last summer’s high gasoline prices, analysts warned on Wednesday, with fuel stockpiles heading towards multi-year lows ahead of the peak summer driving season that begins in two months.
Retail gasoline prices, now averaging $3.44 a gallon nationwide, hit a record $5.02 a gallon last June as crude oil prices jumped on Russia’s invasion of Ukraine and the waning of COVID-19 travel curbs unleashed pent up travel demand.
Vehicle travel in the U.S. started the year 5.6% higher than last year, leading to a drop in gasoline stockpiles for five straight weeks.
Last week’s 6 million-barrel drawdown was the biggest since September 2021, leaving inventories at 229.6 million barrels, their lowest for this time of the year since 2015, according to weekly government data.
After Wednesday’s data, U.S. gasoline futures climbed about 2% to $2.59 a gallon and so far this month, the contract has averaged $2.61, compared with a five-year March average of $2.01 through 2022.
“We are in danger of going below 200 million barrels of gasoline storage for the first time in many years,” said Robert Yawger, director of energy futures at Mizuho.
Rising travel coupled with declining inventories could lift retail prices again this year, said Yawger, with last summer’s $5 a gallon a possibility again.
If refining margins continue their recent rise, “it is going to put upward pressure on the refined products prices, particularly on gasoline,” said John Kilduff, an energy trading and commodities expert at Again Capital.
The surge is partly because U.S. refiners are deep into spring maintenance, which has reduced processing capacity following winter storm shut-downs at the end of last year.
Many refiners have also prioritized making diesel over gasoline to meet demand from Europe, where sanctions on Moscow and strikes in France have limited distillate flows into the region, said Brayton Tom, regional director for energy at financial services firm StoneX.
U.S. refineries are operating at 86% of capacity, down from 89% a year ago. But a major Exxon Mobil Corp refinery expansion could flip the script. When fully operating this month, it will be able to process 250,000 additional barrels of crude daily into gasoline and diesel.