Petroleum Products

Gasoline prices: The front-month futures price of reformulated blendstock for oxygenate blending (RBOB, the petroleum component of gasoline used in many parts of the country) for delivery in New York Harbor settled at $1.72 per gallon (gal) on November 1 (Figure 5), a decrease of 41 cents/gal from October 1. The RBOB–Brent crack spread (the difference between the price of RBOB and the price of Brent crude oil) decreased by 12 cents/gal to settle at -2 cents/gal during the same period.

The RBOB–Brent crack spread turned negative in late October for the first time in five years. Flat or declining gasoline consumption for much of 2018 has contributed to lower crack spreads and increased inventories, settling at the top of the five-year (2013–17) range in October. After a slight decline in U.S. gasoline inventories from August through September, gasoline stocks declined by 11.2 million barrels in October but are estimated to remain 4% higher than the five-year average. STEO estimates that U.S. gasoline consumption declined by 1.3% compared with October 2017, the sixth month this year with year-over-year declines.

Ultra-low sulfur diesel prices: The ultra-low sulfur diesel (ULSD) front-month futures price for delivery in New York Harbor settled at $2.20/gal on November 1 (Figure 6), a decrease of 21 cents/gal from October 1. The ULSD–Brent crack spread (the difference between the price of ULSD and the price of Brent crude oil) increased by 8 cents/gal to settle at 47 cents/gal during the same period.

Distillate inventories declined from September to October, which was the first monthly decline since May. U.S. refiners produced a record level of distillate from June through September 2018, which helped to rebuild inventory levels after they fell in May to the lowest level in four years. However, distillate production declined in October, and consumption combined with exports increased, leading to the September to October decline in inventories. ULSD crack spreads were also supported by a tight international market for distillate fuel.

Global crack spreads: Gasoline and distillate crack spreads in October showed some of the widest disparities in several years across major refining regions. Gasoline crack spreads in New York Harbor, the Amsterdam-Rotterdam-Antwerp (ARA) hub in Europe, and Singapore traded at the lowest levels in years. In contrast, distillate crack spreads in all regions remained at relatively high levels (Figure 7).

Retail gasoline prices in some emerging market countries reached all-time highs in September and October, partially because of higher crude oil prices, but also because currency depreciation with the U.S. dollar in 2018 has made the cost of imported petroleum effectively higher in many countries. The combined effects could be contributing to a slowdown in demand growth globally and to lower gasoline crack spreads because gasoline consumption tends to be more price sensitive than distillate consumption. On the other hand, distillate margins in October remained between 39 and 46 cents/gal in the three regions, which is higher than their five-year averages. In Asia, refinery outages in Japan as well as low inventories in Singapore contributed to the highest distillate crack spreads in October since 2012. Inventories in the ARA region and in the United States also remain lower than their respective five-year averages. Given that certain regions typically build heating oil inventories ahead of winter, higher crack spreads likely reflect a call on refiners to increase production as a result of the current low stock levels.