General Index used this webinar to launch its US crude and refined products benchmarks. Anthony Macaluso, Managing Director for the Americas, and Jeff Bear, US Refined Products Pricing Director, discussed the state of the US oil market and outlined GX’s US coverage. Andrew Wheeler, Marketing Manager, moderated. The session was recorded in early April 2022, shortly after the US announced its largest-ever release from the Strategic Petroleum Reserve (SPR).
US refined products
Jeff said the US has become the world’s main source of diesel, jet fuel, and gasoline. Mexico and Europe were competing for US diesel, which pushed premiums for Gulf Coast cargoes to distant ports to five-year highs. New York Harbor jet fuel had moved to a wide premium over diesel. Port expansion has made this possible. Corpus Christi has supported crude exports, and while Houston remains congested, there is more room along the Texas and Louisiana coast for product and LPG exports. Jeff noted that strong diesel demand, driven partly by trucking during the pandemic, helped US refiners limit losses. He flagged port congestion as a risk to product imports from Asia.
GX data showed US diesel and gasoline prices jumping in early March 2022, after Russia’s invasion of Ukraine, with retail prices reaching records. Looking ahead, Jeff expected US biojet to follow Europe by several years. He noted that Colonial Pipeline has set aside space and created product codes for renewable fuels. He also pointed to how often supply disruptions affect the market, from the Colonial Pipeline cyberattack to Gulf Coast hurricanes.
The US crude story
Anthony said the shale boom of the past decade reversed a long decline in US output. Most new production came from the Permian, Eagle Ford, and Bakken. Under the export ban at the time, US crude could only be exchanged for products with Canada. Light sweet crude built up in storage, prices fell, and the spread between sweet and sour crude narrowed. That made it harder for complex US refiners to earn the full benefit of processing heavier crude.
The export ban was lifted in 2015. US producers gained access to international buyers, and sweet-sour spreads returned to levels set by supply and demand. Because many US ports cannot fully load the largest tankers, the industry developed reverse lightering and offshore loading. US crude now often sets the marginal price in Northwest Europe and is increasingly shipped to Asia.
The US became one of the top three producers alongside Saudi Arabia and Russia. Competition among them led to a price war, at a time when demand was being eroded by ethanol blending, better fuel efficiency, electric vehicles, and gas substitution. In April 2020, WTI at Cushing briefly fell below zero.
Prices then rose as demand recovered faster than supply. Sanctions on Iran and Russia’s invasion of Ukraine tightened supply further. Anthony said that although Europe had not yet banned Russian energy, many traders were avoiding Russian crude and products. Large US producers had been slow to respond to higher prices for several reasons:
- investors were asking for dividends rather than growth
- ESG pressure was rising
- logistics and labor shortages persisted after the pandemic
He expected more swings between extreme highs and lows. New low-carbon crudes, new trading locations, and changes in logistics would make good data and quick responses more important.
Changing specifications and GX coverage
Jeff noted that the US had just announced new fuel economy standards of about 49 miles per gallon by 2026. He expected this to reduce fuel demand and lead more refineries to become terminals or switch to biofuels. He said General Index can add new assessments quickly as products and specifications change.
At the time of recording, General Index was publishing US refined products prices, with more planned for the second quarter. Coverage would span major US markets from New York to Los Angeles. Beta crude assessments covered offshore Gulf of Mexico, onshore grades, and Cushing, with more grades planned in the coming months. GX data is available through third-party platforms, API, email, and PDF, and was recently added to Snowflake. Jeff said US biofuels were a priority for expansion that year. GX was also studying hydrogen and SAF markets in Europe.
Audience questions
On the SPR release of about 1 million b/d for six months, Anthony said it would bridge the gap until supply and demand rebalance, but would not fix the structural shortage. He added that it could reduce the incentive for producers to increase output or for consumers to cut demand. Its effect would also depend on other countries’ decisions, including any EU ban on Russian crude. Jeff said refiners would only raise runs if margins justified it, so gasoline benchmarks over the following weeks would show the effect.
Asked whether the energy crisis would speed up adoption of renewables, Anthony said higher prices lower the barriers to alternatives, but investment decisions depend on whether prices are expected to stay high. Jeff said wider use of E15 depends on political will outside farm states and on infrastructure for moving ethanol. Electric vehicle adoption also depends on access to charging.
On the transatlantic gasoline arbitrage, Jeff said New York Harbor gasoline prices were not yet strong enough to draw European barrels across the Atlantic.
Asked whether GX uses all-day trading or a closing window, Jeff said each assessment follows whatever method is standard in that market. That might be a market-on-close assessment in one region and an average of the day’s trades in another.
Watch the full webinar below.
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