US oil refiners and pipeline operators expect energy consumption to be strong for the second half of 2022, even though analysts and industry watchers have worried that demand could falter if the global economy enters a recession or high fuel prices deter travelers.
The company outlooks suggest a stronger view than recent data that showed weakness in US fuel demand – particularly gasoline – where consumption recently hit its lowest level since February despite it currently being peak summer driving season.
US gasoline product supplied over the past four weeks recently fell below 2020’s level for the same time of year, when the US was in the depths of the pandemic.
Energy companies including Energy Transfer LP and PBF Energy have said that energy demand will be strong in the second half of 2022.
Kian Hidari, an analyst at Tudor, Pickering, Holt and Co, said: “Management sees what’s going on on the ground so any time they’re calling out positivity when demand data has been showing otherwise, we find that interesting. It’s still a strong environment for gasoline compared to historical levels.”
US refiners are also benefiting from high exports of transportation fuels to Latin America, and plants are expected to run at high utilization rates to restock inventories that were drawn down when fuel supply cratered earlier this year.
Refiner exports of finished petroleum products were largely in line with five-year seasonal averages at 3.02 million barrels per day (bpd) in May according to the latest available data from the U.S. Energy Information Administration. That was nearly 65 percent higher than the pandemic low reached in May 2020.
US oil output has recovered to 12.1 million bpd, helping boost pipeline and terminal volumes for many midstream companies for the second quarter from a year ago. Thomas Long, co-chief executive of Energy Transfer, said that the company reported a stronger-than-expected second quarter performance and boosted its guidance for the rest of the year.
James Mick, portfolio manager at Tortoise Capital Advisors, said that of the 16 midstream companies that reported earnings in the week beginning August 8, more than half revised guidance higher.
The four-week average of implied demand for gasoline fell to just under 8.6 million barrels per day (bpd) in the week ending July 29, the lowest it’s been since February according to EIA data, though the weekly figures can be volatile.
Michael Jennings, chief executive of HF Sinclair Corp, said: “We are constructive on the outlook for transportation fuels, supported by low product inventories and healthy global demand.”
Inflation is soaring this year, but with US job growth having unexpectedly accelerated in July, economists are less worried about an impending recession.
Mr Hidari added: “The only US refiner to note some demand tapering was CVR Energy, specifically in the mid-continent, which includes states such as Kansas and Oklahoma.”
The company says it has seen some demand destruction as consumers shy away from driving due to gasoline retail prices, which have reached over $4 per gallon.
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