Key Takeaways:
US refiners are prioritizing jet fuel over gasoline at a record pace, leaving stockpiles depleted just as summer driving demand peaks and threatening the first $5-a-gallon national average since 2022.
US refiners boosted jet-fuel output to a two-year high of more than 2 million barrels a day while gasoline inventories fell 5% below the five-year average, setting the stage for pump prices that could hit $5 a gallon by August.
"Refiners earn more per barrel by producing jet fuel than by producing gasoline and diesel, and they have the operational flexibility to act on that," said Nikolas Plonski, oil market analyst at Sparta Commodities.
Weekly US jet-fuel exports reached a record 455,000 barrels as Europe scrambled to replace supplies from the Persian Gulf, which before the Iran conflict accounted for about 60% of the region's jet fuel. Diesel stocks are running 3% below the five-year average. Gasoline stockpiles posted a rare uptick in the week ended May 29 after 15 consecutive weeks of declines, though analysts called the increase temporary.
The mismatch between refinery output and consumer demand threatens to push the national average gasoline price past $5 a gallon in July or August, a threshold last crossed in June 2022 after Russia's invasion of Ukraine. For Americans already paying more than $4 a gallon, the additional $1 represents roughly $15 to $20 more per fill-up, a direct hit to household budgets that could ripple through consumer spending and inflation expectations.
The shift reflects a global supply chain under strain. The Strait of Hormuz, which previously carried about one-fifth of the world's crude and refined products, remains effectively closed after months of US-Iranian clashes. The International Energy Agency warned earlier in the conflict that Europe had "maybe six weeks or so" of remaining jet-fuel supplies, prompting airlines to cut capacity on less profitable routes.
US refiners responded by reconfiguring their output slates to capture the higher margins available from jet fuel. Jet-fuel cracks — the profit a refiner earns from turning crude into jet fuel — spiked sharply when the Middle East disruptions began, Plonski said. While the premium over diesel has since narrowed, margins remain attractive enough to keep production elevated.
Jet Fuel Exports Hit Record as Europe Scrambles
The US has been a net exporter of combined crude and crude products since 2020 and just last month became a net crude-oil exporter, giving it a structural advantage over most other nations. "The US is in the best situation out of probably any country in the world" regarding energy, said Matt Smith, senior analyst at Kpler.
Still, domestic gasoline and diesel supplies are bearing the cost. Gasoline inventories are 5% below the five-year average for this time of year, and diesel stocks are 3% below. The last time gasoline supplies were this tight heading into summer, in 2022, the national average hit $5.02 a gallon in mid-June.
Refiners have the ability to further optimize their product slates, even with constraints around crude oil, said Al Salazar, an analyst at Enverus Intelligence Research. US jet-fuel exports are likely to moderate only if gasoline and diesel prices rise enough to make those products more profitable than jet fuel, he added.
Retail prices for both gasoline and diesel are expected to resume their upward march by the end of June, with $5-a-gallon gasoline possible by July or August, said Andy Lipow, president of Lipow Oil Associates in Houston.
This article is for informational purposes only and does not constitute investment advice.
