Strong growth in consumption of gasoline while demand for other fuels remains more subdued is creating a headache for oil refiners in the United States and around the rest of the world.
U.S. refineries are configured to turn just under half of the crude petroleum they process into motor gasoline, according to the U.S. Energy Information Administration (EIA).
The precise percentage varies somewhat from refinery to refinery depending on their configuration and the crudes they process.
The average gasoline yield ranges from a high of 51 percent for refineries in the Midwest to a low of 42 percent for refineries on the
Gulf Coast with a nationwide average of around 45 percent.
Most of the rest of the production is distillate (30 percent), jet fuel (10 percent), petroleum coke (5 percent),
heavy fuel oil (2.5 percent) and a host of more minor products like lubricants (1 percent).
Refineries have some operational flexibility to adjust the output of gasoline versus other fuels and feedstocks but it is very limited in the short term without major capital expenditure.
That means for every gallon of gasoline refineries produce they must also produce a gallon or slightly more of other fuels, lubricants and petrochemical feedstocks.
The nightmare for refiners is when consumption of different fuels and other refined products grows at different rates, leaving them struggling to make enough of some items and too much of others.
Split consumption growth
Differential fuel growth is actually fairly common, and a recurrent problem for refiners, so there is nothing extraordinary about the current situation.
The problem at the moment is with surging demand for gasoline in the United States as well as a number of other countries, including India, while demand for distillate and other products is growing far more slowly.
To meet gasoline demand from motorists, refiners have to process increased volumes of crude, leaving them with unwanted stocks of hard-to-sell distillates and other products.
U.S. gasoline consumption increased by 240,000 barrels per day last year while consumption of all other refinery products rose by just 50,000 bpd, according to the EIA.
U.S. gasoline consumption is forecast to increase by another 90,000 bpd in 2016 and account for essentially all the increase in refinery product consumption this year ("Short-Term Energy Outlook", EIA, Mar 2016).
Forecast gasoline demand growth in 2016 has already been revised up sharply since the end of 2015 and the projection still looks conservative.
Gasoline consumption is running far ahead of last year's already-high level and at a seasonal record. With the summer driving season still ahead, consumption could set a record this year.
To meet the enormous demand for gasoline, U.S. refineries are processing crude petroleum at a seasonal record rate.
In the week ending March 25, U.S. refineries processed an average of 16.2 million barrels of crude every day, up from 15.7 million bpd at the same point in 2015.
Gasoline stocks at refineries, tank farms and blending terminals amounted to 243 million barrels last week, up from 229 million barrels at the corresponding point in 2015.
In terms of demand, however, gasoline stocks are currently enough to cover 25.8 days worth of consumption at current rates, only slightly higher than the 25.6 days this time last year.
Stockpiles are higher than the long-term average of 24.5 days and towards the top end of the 10-year range of 22.1 to 26.1 days but they still seem reasonable and are moving in line with normal seasonal trends.
Overall, the U.S. gasoline market appears to be broadly balanced, with refinery production in line with elevated consumption. But the rest of the fuels market is far out of balance.
U.S. distillate stocks are currently equivalent to almost 44 days worth of consumption, a record for the time of year, and far above the normal 32 days.
Jet fuel stocks have risen to more than 29 days, well above the long-term average of 26 days, and while still within the 10-year range, the oversupply is climbing rapidly.
Stocks of propane and propylene are at a seasonal record. Stocks of residual fuel oil are down compared with 2015 but still above normal for the time of year.
Find a swimming pool
There are no easy solutions for refiners. Some analysts have spoken about the possibility of "economic run cuts" to limit the production of distillates.
But if refiners cut
crude processing to limit the build up of distillate and other non-gasoline stocks, they risk not producing enough gasoline to meet drivers' needs.
At present, there are strong financial incentives to produce as much gasoline as possible. The margin for turning crude into gasoline for delivery in July is around 50 cents per gallon (before operating and capital costs).
Overall, refiners are still enjoying healthy margins as the strong profits from gasoline compensate for much weaker profits on distillates; the market is signalling that refiners should continue to maximise production.
Refiners would normally try to trade their way around the problem, exporting surplus distillates and/or importing more gasoline to meet demand without increasing runs.
But that won't work at the moment because most of the other major refining and consuming regions have the same problem of too much distillate and not enough gasoline.
China and India are both experiencing strong growth in gasoline consumption but much weaker growth in distillate demand.
Refiners across China, India and the Middle East are all trying to dispose of surplus distillate stocks by exporting them ("China's perfect diesel storm poised to hit Asian fuel market", Reuters, March 31).
The only solution is to keep producing as much gasoline as possible, put the surplus distillate and other products into storage, and hope tank space onshore and offshore does not run out.
In February, BP's chief executive warned that "every tank and swimming pool in the world is going to fill" in the second half of 2016.
Fortunately, that might not happen, because the amount of potential storage has proved surprisingly large and able to accommodate demand without resorting to the most expensive options such as tanks near shore.
Demand for distillates should also improve if global freight picks up from its current soft patch and next winter is colder than the last one across the northern hemisphere.
The disjointed growth of gasoline and distillate consumption in the United States (and in some other regions) reflects unbalanced growth between the consumer and business sectors.
Consumer demand for gasoline in the United States, India and China is strong while business demand for diesel-powered freight is much weaker.
Refiners must hope the imbalance is resolved (preferably with an acceleration in diesel demand rather than a slowdown in gasoline) before the stock tanks are all filled.
(By John Kemp)