U.S. Gasoline Retail Prices Hit New Record as Refiners Struggle to Meet Demand

On Tuesday, retail gasoline prices in the United States reached another all-time high, exceeding the record set in March, as worldwide refineries struggled with a bottleneck that has pushed prices surging ahead of the summer driving season.

According to the American Automobile Association, the average price of a gallon of retail gasoline surpassed the previous record of $4.331 early on Tuesday morning.

Brent oil prices are down 7% since March 30, whilst gasoline futures are up 9.4% and set a new high of $3.7590 per gallon on Friday before retreating on Monday.

Even though the United States and other countries have made initiatives to increase the global crude supply, gasoline prices have risen as a result of both planned and accidental refinery shutdowns. As demand has returned to pre-pandemic levels, the global supply of petroleum is diminishing. Following the invasion of Ukraine and subsequent sanctions imposed on Russia by the United States and its allies, supplies tightened further.

Mike Jennings, CEO of HF Sinclair Corp, estimated on Monday's results call that the globe has lost 1 million barrels of refining capacity and 1.5 million barrels of oil supplies since the outbreak of the pandemic.

"That's 2.5% of global consumption...that's a significant figure," said Jennings.

In the spring, refineries emphasize gasoline production ahead of the onset of warmer weather and more traffic. In recent weeks, however, they have expanded distillate production to fulfill the demand for jet fuel and diesel in Europe, Latin America, and the United States, while Western sanctions against Moscow have limited Russia's exports.

Gary Cunningham, Tradition Energy's head of market research, said that refinery utilization would remain very high throughout the year on earnings calls.

This week, diesel gasoline set a pump price record of $5.45 per gallon.

Still, gasoline costs in the United States are far cheaper than in other big consumer nations, such as the United Kingdom, Japan, and France, where greater taxes raise the price of fuel.

Patrick DeHaan, head of petroleum analysis at GasBuddy, said, "I do not see this issue being resolved until at least 2023, when greater refining capacity comes online in the Middle East and Asia."

The price of U.S. crude oil, the greatest input cost for refiners, has declined by over $20 from its March highs, with supply bolstered by the release of millions of crude barrels from U.S. strategic reserves and demand weakened by coronavirus lockdowns in China.

However, merchandise inventories continue to decline. According to the U.S. Energy Information Administration, gasoline stockpiles have decreased by 3 percent year-over-year to 228.6 million barrels.

On Monday, the 3-2-1 crack spread, a proxy for refining profits, hit $54.34, an increase of roughly 150 percent compared to the same time last year.

Jennings said, "I believe we can anticipate that commodity prices and, in particular, pricing of our goods will be pretty high, providing the economy remains generally robust."