As the U.S. national average price of gasoline hits $5 per gallon, higher fuel exports out of America are additionally sapping domestic fuel inventories, which are already at multi-year lows.
Reduced refining capacity since the start of COVID, low inventories, and strong post-COVID demand, alongside $120 a barrel crude, have sent U.S. gasoline prices soaring over the past months to reach a record-breaking $5 a gallon on average.
The White House is desperate to lower gasoline prices, which are the most important election issue for many Americans ahead of the mid-term elections in November. Ideas juggled by the Biden Administration range from invoking the Defense Production Act to boost refining capacity and output, to restrictions on oil exports. President Joe Biden also stepped up rhetoric toward oil companies, telling them in a letter sent this week to increase fuel production and noting that “refinery profit margins well above normal being passed directly onto American families are not acceptable.”
Refiners have boosted exports of refined petroleum products this year, especially to Latin America, which isn’t getting much fuel these days from Europe, which in turn is grappling with its own set of fuel supply troubles with the sanctions and embargoes on Russian oil after Putin’s invasion of Ukraine.
Exports of gasoline, diesel, and jet fuel from the U.S. Gulf Coast were up by 32 percent in March, April, and May compared to those three months of 2021, and up 11 percent compared to those months in the pre-pandemic 2019, data from market-intelligence firm Kpler cited by The Wall Street Journal showed.
So far in June, seaborne shipments of gasoline and diesel from the Gulf Coast have jumped on track to be the highest since at least 2016, per oil analytics company Vortexa quoted by Bloomberg.
Higher fuel exports have contributed to lower inventories in the U.S., although this is not the primary reason for multi-year-low stockpiles of products.
U.S. motor gasoline inventories are about 11 percent below the five-year average for this time of year, the EIA said in its latest weekly inventory report. Distillate fuel inventories, which include diesel, are some 23 percent below the five-year average.
“With refiners already running at full tilt, something has to give,” BloombergNEF analyst Danny Adkins told Bloomberg. “We either need a redirection of exports, or prices will need to rise enough for more significant demand destruction.”
President Biden slammed oil companies for passing record profit margins onto consumers and asked for solutions to the refining constraints in the letter to major oil companies and refiners.
The President is also “open to all reasonable uses of the federal government’s tools to increase output and lower costs at the pump, including emergency authorities like the Defense Production Act,” White House Press Secretary Karine Jean-Pierre said this week.
The White House is even considering restrictions on gasoline and diesel exports, and discussions on such a move have intensified in recent days, sources with knowledge of the talks told Bloomberg this week.
However, a partial ban on petroleum exports would backfire as it would create additional supply shortages globally, driving oil prices higher.
Restrictions on exports would also send a mixed message to U.S. allies in a divided world, especially to allies in Europe, which is looking to phase out Russian seaborne oil and refined products imports within eight months when the EU embargo on Russian oil officially kicks in.
After all, crude oil prices are the single biggest factor determining U.S. gasoline prices, accounting for over 53 percent of the average retail price per gallon. In addition, some 1 million bpd of U.S. refinery capacity has been shut permanently since the start of the pandemic, as refiners have opted to either close money-losing facilities or convert some of them into biofuel production sites. U.S. operable refinery capacity was at just over 18 million bpd in 2021, the lowest since 2015, per EIA data.
By Tsvetana Paraskova for Oilprice.com
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This story originally Appeared on Yahoo