Summer driving season demand has failed to meet expectations. US gasoline demand averaged 9.1 million barrels per day over the past four weeks, down 2% from the same period last year. The EIA's gasoline demand tracker shows consumption at its lowest for late June since 2022, when prices peaked above $5/gal and forced demand destruction.
Refining margins are reflecting the weak demand picture. The 3:2:1 crack spread (3 crude : 2 gasoline : 1 distillate) compressed to $14.20/bbl, down from $20.80 at the start of June. This margin compression is forcing some refiners to reduce run rates; Phillips 66 announced a 50,000 bpd cut at its Lake Charles facility beginning July.
Diesel margins have held up better than gasoline, supported by limited cold-weather demand and agricultural season buying in the US Midwest. ULSD crack spreads at $18.50/bbl are down only 15% from May levels. However, the macroeconomic outlook for industrial diesel demand remains weak if PMIs continue to soften.
On the supply side, Russian refined product exports rose in June to 2.5 million bpd, up from 2.3 million in May, adding to global product availability. Indian refinery runs also increased to 5.1 million bpd as new capacity at the Paradip refinery came online.
Weak refining margins suggest the crude market is oversupplied for the time being. Diesel buyers are in a stronger position than gasoline buyers. Lock in diesel requirements for Q3 now at current levels, but leave gasoline procurement flexible — margins could compress further if demand continues to disappoint through July.