Petroleum Products

Gasoline prices: The front-month futures price of RBOB (the petroleum component of gasoline used in many parts of the country) settled at $2.11 per gallon (gal) on May 6, up 9 cents/gal from April 1 (Figure 5). The RBOB–Brent crack spread (the difference between the price of RBOB and the price of Brent crude oil) increased by 1 cent/gal to settle at 49 cents/gal during the same period.

The RBOB–Brent crack spread remains higher than average for this time of year, likely as a result of higher demand expectations, relatively low gasoline stocks, and higher ethanol costs. Gasoline stocks were relatively unchanged in April as the increase in consumption offset increases in production and net imports. We estimate the combined net imports of motor gasoline blending components and finished motor gasoline to be 173,000 b/d, which is higher than the five-year (2016–20) average, and we estimate production of 9.6 million b/d, the most on a monthly basis since February 2020. However, we also estimate that U.S. gasoline consumption increased to 8.8 million b/d in April, a 0.2 million b/d (2.3%) increase from March and the most gasoline consumption since February 2020. April’s gasoline stocks ended the month 3% below the month’s five-year (2016–20) average. We forecast that gasoline stocks will remain low through the rest of 2021 because of increased driving in upcoming months as a result of typical summer travel, higher numbers of people who are willing to travel as a result of increasing vaccination rates, and continued increases in employment.

Recently, record-high prices for Renewable Identification Number (RIN) credits have been another contributing factor to higher-than-average RBOB prices. RINs are the compliance mechanisms used for the Renewable Fuel Standard (RFS) program, which the U.S. Environmental Protection Agency (EPA) administers. In recent years, RIN prices have typically been at a level that only minimally affected RBOB prices. In recent months, however, RIN prices have increased sharply, resulting, in part, from uncertainty concerning Renewable Volume Obligations (RVO) for 2021 and increasing ethanol feedstock costs, which have led to higher ethanol prices relative to gasoline. The higher cost of RFS compliance for gasoline producers and importers as a result of higher RIN prices may pass through to affect RBOB prices.

Fuel ethanol and corn prices: The front-month futures price of fuel ethanol closed higher than $2.00/gal on April 14, 2021, for the first time since December 3, 2014. Fuel ethanol prices increased further throughout the remainder of April and settled at $2.34 on May 6, 2021, 23 cents/gal higher than the front-month RBOB contract (Figure 6).

These higher fuel ethanol prices, which have contributed to higher RIN prices, are mostly the result of higher prices for corn, which is the feedstock for fuel ethanol. On May 6, the front-month futures price of corn closed at $7.60 per bushel, a 144% increase from $3.12 per bushel on the same day a year ago and its highest price since November 2012. Corn prices have been increasing, in part, because of factors unique to corn and grains, such as high demand in China, concerns of reduced supply in the United States as a result of cold weather in the Midwest, and lower production in Brazil as a result of hot and dry weather. Corn prices may also be increasing because of rising gasoline demand contributing to more demand for fuel ethanol blending and, therefore, more demand for corn as a feedstock.

Nevertheless, because some of the factors contributing to increased corn prices are separate from fuel ethanol demand, the fuel ethanol–corn crush spread (the difference between the price of fuel ethanol and the price of its corn inputs) has decreased and has been largely negative since November 2020. Before late 2020, the last time corn sold at a more-than 10 cent premium to fuel ethanol for at least 10 consecutive days was during the demand shock in March and April 2020. During that time, fuel ethanol production was disproportionately affected, falling by more than 45% in April 2020 compared with the previous year, but largely tracking decreases in motor gasoline demand. Whereas the negative economics of blending corn ethanol likely contributed to a decrease in fuel ethanol production in April 2020, RIN prices at that time were low. In 2021 however, some portion of the currently high RIN values is likely being captured by fuel ethanol producers to offset the high operating costs and support fuel ethanol production closer to typical seasonal levels compared with last year.

Ultra-low sulfur diesel prices: The front-month futures price for ultra-low sulfur diesel (ULSD) for delivery in New York Harbor settled at $1.99/gal on May 6, up 16 cents/gal from April 1 (Figure 7). The ULSD–Brent crack spread (the difference between the price of ULSD and the price of Brent crude oil) increased 8 cents/gal, settling at 37 cents/gal during the same period.

The ULSD–Brent crack spread increased in the first week of May to its highest level in more than a year because of increases in consumption and exports. We estimate that U.S. distillate consumption increased to almost 4.1 million b/d in April, which, if confirmed by monthly data, is the most U.S. distillate consumption since November 2019. The increase in demand is likely related to high freight demand, which we expect to continue as economic activity increases with improved vaccination and employment rates. We also estimate an increase in net exports during April to more than 0.8 million b/d, the most since September 2020, if confirmed by monthly data. The increases in U.S. consumption and exports contributed to a 9.5 million barrel (7%) decrease in distillate stocks from March. This stock draw occurred despite an increase in distillate production.