Now It’s Gasoline’s Turn to Be Gripped by Supply Fears

The gasoline market is starting to run out of control like the diesel market.

As the summer driving season gets underway, US buyers are already sucking in more supplies from Europe. There is a loss of secondary feedstocks from Russia that are critical in the production of the road fuel.

Diesel prices spiked after the invasion of Ukraine because of concern about disruption to Russia's huge exports. The rising costs are a blow to governments who are struggling to contain inflation.

The market is aware that there may be a gasoline supply squeeze, as spare capacity is thin, product stocks are low and secondary supply is limited.

Russia is only a small exporter of gasoline, so it was less of a concern early on in the war. The country is a major supplier of diesel and any trade disruptions, either through sanctions or war-related logistical issues, risked denying the world of much-needed fuel.

Russia supplied fuel oil and vacuum gasoil to the US and Europe before the war began. Higher value oil products, like gasoline and diesel, can be processed from these secondary feedstocks.

The US has banned imports of Russian oil and many European companies. In the US and Europe, millions of barrels a day of refining capacity has closed since the start of 2020.

That is helping the market to heat up. US futures and retail prices have hit unprecedented levels and have also been seen in Europe and Asia.

Driving

The Energy Information Administration expects US gasoline consumption to rise from April to September this year. According to the International Energy Agency, total demand is expected to increase by 1.3% this year.

Diesel's troubles are not over. The premium to crude oil in Europe is still very high. Airlines in Nigeria recently threatened to stop flying because of surging prices.

The gasoline price rally is a reminder that the fuels that Russia supplies directly in large volumes, like diesel, are under pressure.