American refiners are facing the prospects of weakening gasoline demand for the first time in five years, stoking fears earnings this year may be worse than the dismal performances seen in 2016.
The sign of weakening US gasoline demand comes as US refiners are in the midst of reporting their worst year of earnings since the US shale boom started in 2011. The oil boom turned to bust in 2014, and US independent refiners reaped the profits as plunging pump prices and a growing economy helped fuel a surge in demand.
US refiners amassed large inventories that punished margins last year, but record gasoline demand and robust exports helped provided a firewall against further slippage. Now the industry faces the prospects of higher crude prices following global production cuts and fresh federal data that suggest their gasoline demand safety net may be eroding.
“We are very cautious on refining margins, and on demand,” Sarah Emerson, a managing principal at ESAI Energy, said. “When oil prices goes up, gasoline demand is going to go down.” The US Energy Information Administration said last week that the four-week average of gasoline supplied in the US was 8.2m barrels a day, the lowest since February 2012.
US gasoline demand is closely watched by traders since it accounts for roughly 10% of global consumption. “It’s tough to base conclusions solely on the weekly data, which can be off significantly,” said Mark Broadbent, a refinery analyst with Wood Mackenzie.
“If the demand is low as it the data shows, then it’s a going to be real problem for refiners.” Gasoline use has grown every year since 2012.
Executives at independent US refiners Marathon Petroleum, Phillips 66 and Valero Energy acknowledged the weaker-than-expected seasonal volume in earnings calls this past week, but said they anticipated strong demand to return. “Although we have seen unusual weakness in refined products demand in January, we expect that solid economic growth will continue to support good, underlying demand for refined products as inventory levels are worked down over the course of the year,” Marathon CEO Gary Heminger said last week.
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