Refined Products: Socializing the Tightness

Research evidence excerpt

Refined Products: Socializing the Tightness

easonality

We did not expect diesel demand to exhibit price-based demand destruction due to the demand being distributed across

multiple economic sectors with only 20% of total demand associated with personal transport. This fact diffuses the price

through multiple products/industries versus the price shock directly touching the consumer, like gasoline. Soon, we are exiting

planting season and demand seasonality should help reduce some tightness in the system.

Gasoline - Tightness Coming with Demand Rising

Inventory Position

Gasoline stocks were the best positioned heading into the conflict. Stocks were above the 5-year range with elevated levels

in the major hubs of the US, ARA and Singapore, following a period of low demand and outperforming refinery runs. Global

gasoline inventories were above 2020 levels at the start of the conflict. The starting position allowed for more give in the

system, initially keeping cracks suppressed versus middle distillates. This has been displayed as gasoline has largely lagged

diesel and jet in timing and absolute magnitude of the price response.

Middle East Supply Dependency

Middle East is not a key gasoline exporter with its exports focused on distillates (primarily jet over diesel), naphtha and LPG.

This factor also helped to mute the gasoline price response.

Supply Response

Gasoline supply has been impacted through yield optimizations favoring diesel over gasoline and the lightening of the crude

slate. This is apparent with most refiners already in min gasoline mode heading into the conflict based on the relative value of

gasoline vs diesel. Gasoline supply has been further reduced due to the lightening of crude slates with the loss of Middle East

barrels.