Jared Ainsworth: Hi everyone, and welcome to another edition of Driving Discussions. I'm Jared Ainsworth, Argus Media's US gasoline editor. Today we're diving into how the US-Iran war has been tightening gasoline supplies right as we head into the summer driving season. I'm joined by Stephanie Crawford, Argus's associate gasoline editor and our US Atlantic Coast gasoline reporter. Stephanie, thanks for being here.
Stephanie Crawford: Hi, Jared. Happy to be here.
Jared: So, let's rewind for a second. Just a few months ago, at the start of the war in late February, the US gasoline market actually looked pretty well supplied. Inventories that last week of February were the highest we'd seen for that time of year since 2019. You know, about 4% above the five year average or so.
At that point, gasoline, especially in the US, was almost an afterthought compared to crude, diesel, and jet fuel, which are a little more directly tied to flows going through the Strait of Hormuz. But still, we did see prices jump pretty quickly for gasoline. At the Gulf Coast, Colonial Sea Bob rose about 37 cents a gallon within a week of the war starting.
And New York Harbor, RBOB jumped about 50 cents. So some pretty big moves right out of the gate. But those moves were really more about global crude prices than anything happening within US gasoline supply and demand dynamics. But that didn't last long. Pretty quickly, things shifted. The war started pulling more US gasoline into the export market to fill global supply gaps while imports into the Atlantic and West Coast drop off.
By May 22nd, US gasoline stocks have fallen to their lowest level for any May since 2014, down more than 16% from the start of the war. So suddenly, like we're heading into the summer with a much tighter supply picture. That's a pretty steep drop. Is that unusual for this time of year?
Stephanie: Yeah, definitely. So I mean, we typically do see stocks fall off from you know, the February to summer time frame. Over the past five years, we've seen about an 8% drop in that stretch, but I mean, it's been pretty much double it, right around 16% this year. I'd say exports are a big part of that story. We've seen a lot more Gulf Coast cargoes heading out, not just to the usable destinations like Mexico and Latin America, but also you know, other places like Africa and Asia, wherever there's global supply gaps because of the disruptions from the war.
And also exports in May, they were up about 32% from the five-year average. And then at the same time, imports, especially to the East and West Coast, they've been much lighter for the most part, which created some real imbalances earlier in the spring. But I said for the most part, I mean, has that started to change a little bit in the New York Harbor? Yeah, it has actually. Imports started picking up around mid-May.
By the end of the month. It has, actually. Imports started picking up around mid-May. By the end of the month, arrivals in the New York Harbor were more than double what we saw in April. Imports across the broader Atlantic coast also hit a four-month high in mid-May. But even then, they were still a bit below typical seasonal levels. And if we zoom in on the Atlantic coast, which is the biggest gas leak consuming region in the US. How has all this played out as we move into the peak part of the driving season? So early on, after the war started, supply in New York Harbor really tightened up. At the same time, you had seasonal factors like tank turnovers and the RVP transition happening, which added to the constraints, especially with fewer imports coming in.
But interestingly, we didn't really see the usual summer demand show up. So once imports and Gulf Coast flows picked up again in May, the market actually became a bit oversupplied.
Jared: So pretty interesting, kind of the opposite of what you might expect. You know, let's talk about the Jones Act waiver for a second. The US issued one on March 17th, allowing foreign flag vessels to move fuel between US ports. Have we seen more shipments from the Gulf Coast to the Atlantic Coast because of that? So we've seen continued flows to the southeast, like places like Florida, but not much movement further up the East Coast to markets like Philadelphia or New York Harbor. Those northern markets still rely heavily on Colonial Pipeline, and flows on the pipeline did increase into the northeast last month. In fact, that's part of what contributed to the supply overhang that we ended up seeing. So what about other markets? Has the waiver had more of an impact elsewhere?
Stephanie: Yeah, especially on flows from the Gulf Coast to the West Coast, and especially in April, we saw big changes there. So before the Jones Act waiver, we saw a lot of creative routing, like shipping gasoline and gasoline components to the Bahamas for blending and then sending it on to the West Coast. And that's how a lot of folks were able to get around Jones Act requirements.
But after the waiver came out, most of those barrels started moving directly to the West Coast instead.
So, I mean, just looking at, you know, gasoline dynamics altogether, before we wrap up, I do want to touch on something specific to New York Harbor again. The EPA, they've issued emergency fuel waivers to help ease price pressures, or at least try to ease price pressures. And that's flattened out our reformulated gasoline and CBOB spreads in some places like Chicago and Texas as well. New York's been a little different, though. So we know Buckeye Pipeline, they're allowing some higher RVP RBOB at 10.0 instead of the usual 7.4. But the state of New York is still enforcing its regular specs. Does that affect price spreads or trading behavior in that region? So early on, there was some thought that Buckeye RBOB might move closer. to parity with CBOB while the waivers were in place. But instead, the spread is actually widened to historically high levels in recent weeks. A big reason is that traders are still blending to the stricter 7.4 RBP spec, mainly because of barge market requirements and NYMEX delivery specs at the start of each month. We've also seen ARVOB used more as a blend stock for other gasoline grades, which has shifted blending economics a bit this summer.
So it definitely sounds like the market hadn't behaved quite how people expected. Stephanie, really appreciate you breaking all that down.
Stephanie: Thanks, Jared. Glad to be on today.
Jared: And that's it for this episode of Driving Discussions. Thanks for listening and be sure to stay tuned to Argus for the latest pricing and analysis across US gasoline markets.
