ANALYSIS: US summer driving season hits as gasoline supplies squeezed tight

NEW YORK – U.S. vacationers are hitting the road for peak summer travel just as gasoline supplies face tightening, with strong domestic demand and surging fuel exports putting pressure on inventories and threatening higher pump prices.

Despite rising summer demand, U.S. refiners are increasingly prioritizing diesel and jet fuel production to offset global shortages caused by shipping disruptions at the Strait of Hormuz. This crucial waterway handles nearly a fifth of global oil flows and has effectively been closed since the start of the Iran war.

Analysts warn that a supply deficit could be imminent. Gasoline demand in the U.S. has remained robust even as pump prices surged roughly 40% since the conflict began, hovering above $4 per gallon. Some experts also worry that U.S. refineries may struggle to maintain near-capacity operations, citing more unplanned outages than expected.

The once-comfortable gasoline supply built during low-demand winter months disappeared by the end of May, coinciding with the start of the summer driving season over the Memorial Day holiday weekend. Peak summer travel in the U.S. typically runs through early September.

No Margin for Error

In the first week of June, gasoline inventories fell to 215.1 million barrels, the lowest seasonal level in a decade, according to government data. Supplies have dropped by more than 34 million barrels since the start of the Iran war.

Distillate fuel oil inventories fell even further, hitting a 23-year low in May, leaving supplies highly vulnerable to sudden disruptions.

With domestic gasoline demand staying strong and exports rising, analysts warn that total demand for U.S.-produced fuel could reach 9.5 million barrels per day (bpd) this summer – exceeding the current production capacity of 9.2 million bpd.

“Balances will definitely be severely tight because incentives still support jet fuel, and Middle Eastern refiners are not coming back quickly,” said Sumit Ritolia, lead analyst for refining supply and modeling at Kpler.

Gasoline: The Neglected Fuel

U.S. refiners, less dependent on Middle Eastern crude than their Asian and European counterparts, are better positioned to maximize distillate output to capture strong profit margins.

In late April, the U.S. averaged over 2 million barrels per day of jet fuel production for the first time, according to the Energy Information Administration (EIA).

Exports have surged as well. In May, the U.S. exported 54.65 million barrels of diesel and jet fuel – the highest on record since 2017 – and 22.52 million barrels of gasoline, up from 20.10 million barrels in April.

“This has left gasoline as the neglected stepchild of the refinery slate,” said Tamas Varga, analyst at PVM Oil Associates.

Historically, Europe could help ease U.S. gasoline shortages, but today that option is limited. European fuel supplies are tight, and freight costs have skyrocketed due to the Strait of Hormuz blockage.

“Even if export rates hold steady and don’t rise with global demand, gasoline inventories could drop by 2 to 3 million barrels per week during the summer crunch,” said Tom Kloza, chief energy adviser at Gulf Oil.

Refineries Under Pressure

U.S. refiners are running at 95.3% capacity in the first week of June, the highest level in nearly a year. However, analysts question whether plants can maintain these rates to capture high margins.

Some scheduled maintenance for the fall has already been postponed or scaled down, raising concerns about potential issues later, said Raul Calzada, refining analyst at Energy Aspects. April also recorded the highest average unplanned refinery outages in five years, with roughly 483,000 bpd of crude processing offline, according to IIR Energy.

As summer demand peaks, tight supplies and high exports may continue to push U.S. gasoline prices higher, leaving motorists with little room for error.

-Reporting by Nicole Jao in New York; Editing by Liz Hampton and David Gregorio/Reuters