Voters are known to take their discontentment over economic woes with them to the ballot box. A common point of conversation among voters, especially in suburban and rural America, is the fluctuating, and recently rising, cost of fuel, which is now 60% more expensive than it was in November 2020 when President Joe Biden was elected. This data point is certain to weigh on the minds of voters casting their ballots this election cycle.
Cost of Fuel and Impacts on Adjacent Industry
Gas prices are also an indicator of high food prices, as the entire food industry relies on trucking and transportation. Grocery prices are another major point of contention for American families in today’s economy. As the United States gears up for a pivotal election year, the surge in global fuel prices is emerging as a major potential factor in the election. Though many variables determine the high price of gasoline, voters tend to punish the politician in office for higher prices.
The Impact of Disruptions and Demand
The rising prices of gasoline and diesel, the most widely consumed fuels, are outstripping crude oil price increases in significant markets. In the United States, gasoline futures have seen a marked increase, rising over 20% this year. Similarly, diesel prices in Europe have ascended by 10%. These trends reflect tight market conditions as the summer travel season looms, underscored by higher-than-average refiner profits across various regions.
Factors Behind the Price Increase
A mix of factors contributes to the escalating fuel prices. Scheduled maintenance, unexpected refinery outages, and drone attacks on Russian facilities have disrupted fuel production. Additional pressures come from increased shipping costs due to attacks in the Red Sea and drought conditions in the Panama Canal, compounded by supply chain disruptions from Western sanctions against Russia.
Challenges in Forecasting Fuel Availability
The global oil market faces uncertainty with plans to introduce over a million barrels-a-day of new refining capacity this year. However, such projects often encounter delays, complicating predictions for fuel availability in a year marked by anticipated record-breaking global oil demand and a critical US election.
Potential Impact on U.S. Election
Currently, the typical price for gasoline at fuel stations across the United States has risen by 60% since early November 2020, a rise that could heavily influence American voters’ perceptions of their financial well-being compared to the time of President Joe Biden’s initial election. Furthermore, the national reserves of both gasoline and diesel fuels are significantly lower than what is typically expected for this time of year, indicating a smaller than usual buffer in fuel supplies. With strategic petroleum reserves at low levels, the U.S. government has few alternatives to reduce gasoline prices, posing a potential electoral challenge.
Refining and Production Dynamics
Goldman Sachs notes that refiners are currently prioritizing gasoline production over jet fuel and diesel, highlighting the delicate balance between supply and demand in the fuel market.
Global Refining Capacity Concerns
Major US refiner Valero Energy Corp. anticipates a lengthy startup period for new global refining capacity, suggesting a tight supply-demand balance for the near future. This perspective underscores the ongoing challenges in meeting global fuel demand.
International Refining Developments
The Dangote refinery in Nigeria and Petroleos Mexicanos’s Dos Bocas plant in Mexico represent significant developments in global refining capacity. However, questions remain about when these facilities will reach full operational capacity and how they will affect the types of petroleum products available on the market.
Refined Product Margins and Volatility
Goldman Sachs projects that refined product margins will remain high and volatile, with demand growth for refined products roughly aligning with net gains in refining capacity. This dynamic points to continued fluctuations in fuel prices.
Supply Chain and Production Uncertainties
The global gasoline market faces uncertainties, particularly regarding the supply of crude and feedstocks. Sanctions on Russian oil, changes in US shale production, Organization of the Petroleum Exporting Countries (OPEC) cuts, and alterations in global trade flows all influence decisions on fuel production.
The Blending Component Challenge
As the US summer driving season approaches, the availability of octane-boosting blending components for gasoline production is in question. Environmental regulations further complicate the situation, highlighting the intricate balance required to meet fuel standards and demand.
Sanctions and Their Impact
The imposition of sanctions against Russia following its invasion of Ukraine has affected the production of key blending components like alkylate and reformate. This issue is likely to persist throughout the year, impacting fuel production capabilities.
Looking Ahead: Capacity and Demand
Global crude refining capacity is set to increase, slightly outpacing demand growth. However, the outlook varies by fuel type, with oil product margins expected to be lower than the previous year but still above historical levels. This situation reflects the challenges of bringing new plants online and the inefficiencies in refining caused by the rerouting of Russian crude and petroleum products.
