As the Iran war drags on and a global shortage of jet fuel deepens, U.S. refiners are ramping up jet fuel production to record highs. As a result, gasoline output is falling, raising concerns about disruptions to transportation fuel supplies ahead of the busy summer vacation season.
On the 19th, Bloomberg said, "As the Iran war rattles energy markets and inventories and jet fuel prices have surged in recent months, refiners have expanded jet fuel production with profitability in mind," adding, "By contrast, gasoline's share of total production is well below the seasonal average."
According to the U.S. Energy Information Administration (EIA), the United States produced more than 2 million barrels per day of jet fuel over the past four weeks. It is unprecedented for the United States to produce 2 million barrels per day of jet fuel for four consecutive weeks.
By contrast, U.S. gasoline inventories are at their lowest level for this time of year since 2014, and imports are also at their lowest this century. Moreover, in summer, fewer fuel additives are used than in winter, requiring more crude oil to produce 1 gallon of gasoline.
U.S. refiners such as Valero Energy and Marathon Petroleum have recently brought additional jet fuel refining units online, and some are even using facilities that did not originally produce jet fuel.
Natalia Losada, senior oil products analyst at consulting firm Energy Aspects, said, "U.S. refiners are maximizing jet fuel production even at the expense of gasoline and diesel Production yield," adding, "As we head into summer, gasoline will find itself competing for a share of production."
A similar shift is appearing in Europe. Frans Everts, a senior executive at the U.K. energy corporations Shell, said the European refining sector has entered "max jet mode," or "maximum jet production mode."
The shift in production shares by U.S. refiners is heightening market concerns as the summer vacation season approaches. During this period, gasoline demand traditionally surges, and if refiners expand jet fuel production, output of other essential fuels such as gasoline inevitably declines. Reduced supply is likely to translate into upward pressure on gasoline prices.
Eugene Lindell, who leads refined products at consulting firm FGE NexantECA, said, "In the end, it becomes a bidding war among fuels," adding, "Gasoline is dominant for now, but later jet fuel will likely bid higher to claim a larger share of production."
This reallocation of production shares is expected to hurt Europe as well as North America. The European Union (EU) and the United Kingdom, which typically source large volumes of diesel and jet fuel from the Middle East, have recently been importing more than usual from the U.S. Gulf Coast. Bloomberg said that with tensions in the Middle East persisting, if U.S. supplies also shrink, Europe's fuel supply instability could worsen further.