Gasoline Continues to Gain on Russian Refinery Outages, Demand Shifts Toward Thinning US Inventory

The range of Ukraine’s drone offensive against oil and gas facilities on the Russian mainland could soon expand to threaten nearly a third of the country’s major oil refineries. With up to 800,000 barrels per day (bpd) of Russian oil processing capacity having been taken offline and a ban on fuel exports from the country in effect until September, international markets may continue leaning heavily on increasingly narrow stockpiles of gasoline held in the US. New EIA data shows American gasoline inventories are being drawn down at the fastest pace since 2019 and the rate of exports has gained steam.

White House officials have expressed skepticism about the effectiveness of this strategy, and are likely concerned with the political implications, but Kyiv has thus far dismissed any requests to cease their targeting of Russian energy enterprises. Retaliation has come in the form of attacks on underground gas storage sites in Ukraine, but could eventually expand further to pipelines that run through both countries. Russia has struggled to repair some of their refineries that utilize western components, as access to the companies that manufacture and install such equipment has been cut off by sanctions.

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International benchmark Brent crude oil futures have slipped from a near six-month high above $92.00 per barrel over the past couple of days, now trading closer to $89.00. There was significant speculative activity in crude markets leading up to a widely anticipated strike against Israel from Iran and its proxies throughout the Middle East. Indeed, Tehran spearheaded a multi-directional drone and missile strike against Israel over the weekend but, as MRP noted early this week, the risk for severe escalation emanating from this event ended up being relatively low compared to what was expected. Oil traders appear to have adjusted their positioning in accordance with that drop-off in geopolitical tensions, but a spate of supply-side risks still loom over energy products.

In particular, the world’s supply of gasoline is under threat from a significant drop-off in Russian fuel exports. Since January,  MRP has repeatedly highlighted an ongoing wave of drone attacks that have now targeted more than half of Russia’s 32 major oil refineries, reducing Russian oil refining capacity by anywhere from 670,000 – 800,000 barrels per day (bpd), according to JPMorgan and Dow Jones estimates, respectively. The employment of this tactic has resulted in an ongoing suspension of the Russia’s fuel exports until at least September. Facilities successfully targeted by Kyiv’s drones have been located as far as 1,300km behind Russia’s border and, if that range can be increased by a further 200km, JPMorgan reports that three more refineries would fall into the danger zone for potential attacks. We have posited that these disruptions could be exacerbating already elevated demand for gasoline exports from alternative sources like the US, pushing energy prices up further.

EIA data shows total US exports of finished motor gasoline in the six months to January reached their highest level since April at 156.2 million barrels. If this pattern continues, strong international demand will coincide with the US’s peak domestic driving season and each of these parties will be grabbing at increasingly narrow US gasoline stocks. US gasoline inventories fell for the ninth time in eleven weeks weeks throughout the seven days to April 12, decreasing by -1.154 million barrels. More gasoline has been drained from commercial stockpiles in the past…