The COVID-19 pandemic has left U.S. refineries with a problem. What to do with growing supplies of diesel fuel, a byproduct of refining oil for gasoline.
Reports suggest that some refineries aren’t eager to reopen and resume production of gasoline after Hurricane Laura hit the Gulf Coast states last week. Demand for gasoline is slowly increasing but the demand for diesel and even jet fuel is not. There’s a glut supply for those products commonly known as distillates.
The airline industry is not seeing an increase in flights and major operators like American Airlines and United have announced furloughs and layoffs totaling into the thousands.
Refiners typically see a drop in gasoline demand after the Labor Day holiday which signals an end to the summer driving season, which wasn’t much this year due to the pandemic and the restrictions on vacation places. Now they face decisions whether to move ahead with more gasoline production which also means production of distillates.
“Once Labor Day wraps up, and especially this year where few parents are dropping off their kids (at school), gasoline and distillate demand will likely see more erosion than usual,” said Patrick De Haan with GasBuddy in a report by Reuters.
Several refiners shut during Hurricane Laura, reducing overall refining capacity use to less than 77%, but refiners have indicated that they will not ramp up much more due to concern of oversupply of distillates.
“Refineries are in no rush to reopen, because they’re making no money,” said Bob Yawger, director of energy futures at Mizuho.
One refining executive who requested to remain anonymous said they are constrained by distillate inventories and would continue to run plants between 80% to 82%.
Source: Reuters.