Gas Price Relief Coming for Drivers, Refinery Supply & Diesel Headwinds Will Last

SPEAKER_1 (0:00)

Patrick De Haan, the head of Petroleum Analysis at GasBuddy, and Rob Thummel, Senior Profilium Manager at Tortoise Capital. Great to have you both on. Patrick, let's start with you.

Gas prices were up more than 18% last week. I think we're averaging $4.40 for a gallon, which hurts me because you know I'm in Chicago, and how much higher we really are here versus that national average. How much worse can this get for the consumer? I know I ask you this every time we talk, but it seems to just be ticking higher every time I have you on.

Patrick De Haan (0:31)

Yeah, Marlene, it seems like the trajectory is probably going to be shifting every time you have me on as well. And this morning, we do find an elevated national average, as you mentioned, $4.46 a gallon or so. Diesel price is even higher, about $6.49 a gallon. But we may see a little bit of improvement here, especially in the Great Lakes, where refining issues have been layered on top of geopolitical escalations. Some of those refining issues are getting sorted out. The ExxonMobil refinery that led Great Lakes prices surged in the last week is hopefully in the process of restarting, according to sources. But a lot of the other pain elsewhere around the country has to do, of course, with geopolitical tensions overseas. The Trump administration seems to have a little bit of a change in heart, at least for now.

Trump over the weekend after escalations were traded, seems to have said he would probably talk to Iran again about coming up with a deal. That represents a shift in tone from just a week and a half ago when the Trump administration suggested that it may not be until after the election that prices could go down, signaling they might not have an interest in weighing in. Now it seems like that tone may be shifting. Oil prices down significantly this morning on that potential. If it happens, we could eventually see these prices peak out and maybe see some release.

SPEAKER_1 (1:46)

Rob, you've got to focus on diesel just because of its importance to the inflation picture. I mean, we saw diesel up in every state across the board at record highs last week.

How are you looking at diesel? Because I was looking at some data last week when we were touching those record high numbers, saying that it could cost customers in the Northeast more than 30% higher cost to heat their house this winter. Diesel affects everything. So I mean, at what point can we sustain these elevated prices to where we're not seeing it pass through to inflation and to the end user, which of course is the American consumer?

Rob Thummel (2:21)

Yeah, thanks Marlee. I think we're getting there. I think, you know, diesel prices are high. I think what everybody's learning is that, you know, energy is pretty important.

Oil goes into a lot of consumer products. And so I think that that's something we're keeping our eye on, because as you highlight, you know, diesel is higher because of the fact that there's a lack of refining capacity basically globally. And the war between Russia and Ukraine has taken more diesel offline and it's created a really undersupplied market globally for diesel. But yet, diesel is really important, kind of serving as that last mile to deliver most consumer goods around, not only just the country, but around the world.

SPEAKER_1 (3:05)

And Patrick, while we have you, I want to talk about inventories here and have you break down some of these numbers. For us, crude inventories in the US only about 1% off of their five-year average, while gas and distillate inventories are well below their seasonal averages. Which inventory matters the most right now to seasonal outlook? Which should the investors be focused on?

Patrick De Haan (3:27)

Well, certainly refineries, refineries, refineries. It's refined products that are dictating prices much more significantly. You look at the price of oil, and it would give you basically no details that diesel prices are setting records and that gas prices are so elevated. Both gasoline and diesel to a different degree are somewhat disconnected, because it's all about refining capacity right now, highlighted by US refining issues.

Certainly, Ukraine attacking Russian refineries is increasingly impactful. Don't forget the refineries that are stuck behind the Strait of Hormuz as well. Some of the largest, newest refineries in the Middle East are seeing their products stuck behind the essential de facto closure of the Strait of Hormuz. Anyone with refining capacity right now is being handsomely rewarded. Any downtime is extremely costly. That's why US refineries this summer have operated at the highest utilization rates this century in over 27 years. I do expect that will continue into the fall. Of course, we do have a little bit of maintenance here and there, but crack spreads that industry term for profitability of refinery remains very, very hot.