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) settled at $2.11 per gallon (gal) on June 7 (Figure 5), an increase of 3 cents/gal from May 1. The RBOB–Brent crack spread (the difference between the price of RBOB and the price of Brent crude oil) declined by 7 cents/gal to settle at 27 cents/gal over the same period.

Higher-than-average U.S. gasoline inventories continue to put downward pressure on the gasoline crack spread, despite EIA estimates that U.S gasoline consumption neared or surpassed monthly five-year highs from March through May. STEO estimates U.S. gasoline inventories were 239.0 million barrels at the end of May, 9.5 million barrels higher than the five-year average for May.

This forecast estimates that the U.S. average retail price of regular grade gasoline will reach its peak this year in June at an average of $2.92/gal and then begin to decline. The U.S. average retail gasoline price is forecast to fall to an average of $2.91/gal in July. A probability calculated using futures and options data indicates that there is roughly a 7% chance of U.S. retail gasoline prices reaching an average of $3.00/gal in July. In the five trading days ending June 7, the July 2018 RBOB futures contract averaged $2.11/gal. Options prices imply this contract has a 7% probability of exceeding $2.30/gal, which typically leads to a retail price of $3.00/gal at the contract’s expiration at that time of year (Figure 6). The probability of reaching $3.00/gal was at 36% on May 22, when RBOB prices reached the highest level since late 2014.

Ultra-low sulfur diesel prices: The ultra-low sulfur diesel (ULSD) front-month futures price increased 13 cents/gal from April 2 to settle at $2.11/gal on May 3. The ULSD–Brent crack spread (the difference between the price of ULSD and the price of Brent crude oil) declined by 1 cent/gal to settle at 36 cents/gal over the same period (Figure 7).

The ULSD crack spread fell sharply on May 31. This decline may have been caused by a rise in U.S. distillate stocks during that week, in contrast to a decline in crude oil stocks, and also potentially by lower-than-normal trading volumes for futures contracts at the end of every month as they expire. The rise in U.S. refinery utilization at the end of May, particularly on the U.S. Gulf Coast, could have been responsible for the rise in petroleum product inventories.

Despite increased production contributing to a lower ULSD crack spread, U.S. distillate consumption is still robust, even as this year’s heating season ended. In the June STEO, EIA estimates that distillate consumption in May was 4.0 million b/d, the highest for the month since 2007, and it also estimates that distillate consumption will be near five-year highs through the summer months. Distillate consumption is likely supported by continued growth in U.S. industrial activity. U.S. industrial production reached a record high in April, surpassing the previous record set in late 2014. Further, several trucking indicators show increased trucking tonnage and trucking demand in the United States this year, which supports increased demand for diesel fuel.