The Only Thing Predictable in the Fuels Market Is Unpredictability

Volatility may come from the sky, whether human-made missiles or Mother Nature’s storms.

The Only Thing Predictable in the Fuels Market Is Unpredictability

June 2024   minute read

By: Jeff Lenard

While “barrel counting” is a difficult task on a global level, all signs point toward continued strong demand for petroleum. Or, as Saudi Aramco CEO Amin Nasser Saudi said earlier in 2024, “We should abandon the fantasy of phasing out oil and gas.”

But that doesn’t mean that there won’t be wildcards that could disrupt the market, said Denton Cinquegrana, chief oil analyst for OPIS, in his NACS State of the Industry Summit presentation.

The refining cavalry is still several quarters away.”


Let’s start with supply. While the United States hasn’t built a new refinery in decades, massive expansion of existing refineries has pushed the country’s refining capacity to near-record highs.

More refining capacity is also coming from other countries. In some cases, “don’t believe the hype,” especially related to Mexico’s 340,000 barrel per day Dos Bocas refinery, “which has had something like 30 ribbon cuttings and is still not producing oil,” said Cinquegrana. Other major refineries are coming online soon in Kuwait, Saudi Arabia, Oman, China and Nigeria. However, soon is a relative term.

“It’s not like flipping a switch to bring a new refinery online—the refining cavalry is still several quarters away,” said Cinquegrana.

Denton Cinquegrana, chief oil analyst, OPIS

Gasoline supply is expected to be tight this summer because of lower inventories entering the second quarter. A storm-filled cold winter impacted refinery operations and made the normally routine maintenance season more complicated than usual, affecting output.

Meanwhile, the diesel market is rapidly shifting; renewable diesel refining capacity is already more than that of biodiesel—and growing, with California expected to be 100% renewable diesel within the decade.

The big questions related to renewable diesel will be usability in cold weather without gelling—and if growing demand will create another food vs. fuel fight with soy, similar to when corn-based ethanol was introduced.


Global demand for petroleum products continues to grow, largely a function of a growing world population and emerging economies that require increased energy. However, demand has likely peaked in the United States.

That means that the fight for margins will become a fight for gallons and market share, said Cinquegrana.

While it’s generally assumed that electric vehicles are having a significant effect on demand, the growth of EVs likely accounts for only low single-digit demand destruction. Instead, the bulk of lost demand over the past five years—75% to 80% of the total lost demand—has come from increased fuel efficiencies, with another 20% coming from the decrease in daily commutes related to hybrid work schedules becoming the norm. Cinquegrana estimated as much as 250,000 barrels a day of demand—the equivalent of a small refinery—has been lost in the United States based on the workforce commuting one day less per week on average.

Demand could further decrease over the next decade because of the aging population. About 40% of all drivers in the United States are 55 and older. They drive less than the average driver and are nearing retirement, when they will drive even less than they currently do.

On a global level, supply and demand are relatively steady, so Cinquegrana doesn’t see retail margins contracting much. “Thirty cents—maybe even 40 (per gallon)—is the new 20 (from a decade or so ago),” said Cinquegrana. But while retail margins have expanded, so have costs; labor, real estate, interest rates, inflation and, of course, swipe fees, have cut into higher margins.

Boiling Points Are a Concern

If something significant happens anywhere in the world to disrupt supply, it will have an outsized effect on prices everywhere. And Cinquegrana said two big concerns for supply disruptions come from the sky.

First, geopolitics. “It’s not simmering, it’s boiling. Cook the pasta now,” said Cinquegrana about current global tensions and strife.

In Russia, Ukrainian drone strikes have taken away about 15% of the country’s refining capacity, including its third-largest refinery, which is 800 miles from the frontline. Any decrease in refining capacity in Russia beyond that could put upward pressure on prices, and that’s not something that the Biden Administration wants, especially in an election year. That means there could be some behind-the-scenes talks with Ukraine about how to strike Russia without disabling any of the global refining infrastructure.

On a global level, supply and demand are relatively steady.

In addition, OPEC+, of which Russia is a member, also is carrying forward production cuts through at least the second quarter of 2024, which could continue to keep oil prices elevated in the $80 to $100 range.

The Israel-Hamas war also is a concern. Attacks by Houthis in the Red Sea have cut off the area from refined product transit, rerouting 7 million barrels per day, or about 7% of the world’s oil supply. So far it’s not taking more barrels off the market, but rerouting adds time and shipping costs, and there are concerns that strikes could spread to the even more critical Strait of Hormuz. The recent Israeli strikes in Gaza have further put the markets on edge, with fears of a widening conflict that could also affect oil production in the region.

The other threat from the sky is the weather. This summer’s hurricane season is predicted to be worse than average because of elevated ocean temperatures.

“If a cone of uncertainty for a Category 4 or 5 hurricane lands between the swath of land between Corpus Cristi, Texas, and Pascagoula, Mississippi, refinery operations and, in turn, product supplies can get very concerning,” said Cinquegrana.

The damage from a strong hurricane in the region also could permanently reduce supply, with refiners having to consider rebuilding as U.S. demand slowly decreases. “When do these refineries become stranded assets?” he asked.

This summer’s hurricane season is predicted to be worse than average.

Hurricanes aren’t the only weather-based threat to refineries. Scorching summer temperatures also take their toll. Refineries were designed to operate in 100-degree weather—but what about 30 straight days of 100 degrees-plus?

“Refining and petroleum markets have become more vulnerable to extreme weather outside of hurricanes. Extreme winter weather has been responsible for the tightening gasoline supply situation. Maintenance cycles have become painful,” he said.

The Forecast Remains Somewhat Sunny

Despite the challenges, Cinquegrana remains bullish on the petroleum industry. “Fossil fuels are not going away despite what you may see in the news. We can revisit this in 25 years,” but petroleum will continue to be an integral part of daily life.

North America is also a “privileged continent” in the broader petroleum industry, said Cinquegrana. It is the world’s largest producer of oil and natural gas with natural waterways to transport product and great engineers to increase efficiencies.

But, he cautioned, “Don’t underestimate the power of human behavior.” If supply is significantly disrupted and gas prices jump to $5 per gallon, it’s likely that behaviors would change much more rapidly than they currently have evolved.

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