Gasoline Production Up 13% From COVID Bottom
U.S. gasoline production at the refiner/blender level picked back up last week, rising 9.4 percent above the week before, which represented a 12.8 percent increase over the post-coronavirus low seen three weeks prior.
The Weekly Petroleum Status Report from the U.S. Energy Information Administration states that during the week ending April 24, 2020, U.S. facilities refined or blended an average of 6.57 million barrels of finished motor gasoline per day, which translates into an average of 276 million gallons per day. This is up from an average of 245 million gallons per day for the week ending April 3, 2020.
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Production decisions made at the refiner/blender lag the purchase decisions made by service stations and other end users by at least a week (finished gasoline only travels by pipeline from the refiner/blender to the wholesaler tank farm at about 6 miles an hour, and then it has to get pumped into a truck and go out to the service stations). It is possible that the severity of the production cuts at refineries and blenders in the last week of March and first week of April were anticipatory, when no one was quite sure how bad the drop in driving would be, and the recently increased production better represent actual demand during the stay-at-home order period.
In any event, Moody’s Investor Service included an article in their Weekly Credit Outlook this week that used the new gasoline numbers to say that “highway revenue bonds secured by gasoline taxes are among the best-positioned US special tax bonds to weather the coronavirus crisis.” The Moody’s report says that the company rates around $32 billion in state highway revenue bonds and that most of those have coverage ratios high enough to “cover debt service even if gasoline production remained at the trough reported earlier in April…as a proxy for a downside scenario, a nearly 50% decline with no recovery still would not imperil most highway bonds’ debt service.”
Gasoline consumption (and thus production) does have some seasonal variance, with consumption higher during summer vacation season (and a bit of a spike around holidays in November-December). But production usually doesn’t take off until after April. The following chart compares weekly production in March and April 2019 versus 2020 (with the y-axis truncated a bit to make things look more dramatic).