Americans Are Pumping Gas Again as States Reopen

Source: By Rebecca Elliott, Wall Street Journal • Posted: Sunday, May 10, 2020

Fuel makers see gradual recovery in demand as coronavirus restrictions ease, but they warn the next months could be tough

Valero reported a quarterly loss that was its biggest since 2008. Photo: Caitlin O’Hara/Bloomberg News

Americans are starting to get back behind the wheel, welcome news for the companies that turn oil into gasoline and diesel.

Fuel makers including Valero Energy Corp. VLO 4.96% and Phillips 66 have said they expect gasoline demand to continue to rebound after plunging to roughly half of normal levels in early April, as states reopen from lockdownsimposed to limit the spread of the new coronavirus.

As a result, some refiners are looking to produce more gasoline again after choking back output in recent weeks. Such a move should help keep prices at the pump low for longer. Regular gasoline averaged about $1.80 a gallon in the U.S. on Thursday, down from $2.89 a year earlier, according to the price tracker GasBuddy.

“People have been cooped up, they want to drive,” Phillips 66 Chief Executive Greg Garland told investors recently, offering a glimmer of hope as the largest U.S. refiners posted their worst quarterly earnings in years.

Marathon Petroleum Corp. MPC 5.42% reported a first-quarter loss of $9.2 billion, the company’s largest quarterly loss on record, FactSet data show. The company took $12.4 billion in charges tied to items that include the value of its refineries, pipelines and inventory of oil and refined products.

Phillips 66’s quarterly loss, at $2.5 billion, was its largest ever. The company attributed it in large part to impairments, lower refinery utilization and thinner margins. Valero reported a $1.9 billion quarterly loss, its biggest since 2008.

It wasn’t that long ago that refiners were raking money in as soaring U.S. crude production created regional bottlenecks, allowing them to access pockets of relatively inexpensive oil.

Fuel makers typically do well when oil prices are low because people drive more. But the recent oil-price crash has largely been driven by a rapid decline in demand as people stay home and travel less to avoid contracting Covid-19. That means the second quarter is expected to be grim for refiners, too.

Nevertheless, fuel makers were generally optimistic about an eventual recovery in appetite for their products, saying they think gasoline consumption will continue to climb, even as people remain wary of getting on an airplane.

“We see a fairly gradual recovery in demand,” Gary Simmons, Valero’s chief commercial officer, told investors in late April.

Mr. Simmons said he expects gasoline demand to return eventually to around pre-Covid-19 levels, explaining that some people will embrace driving over public transportation because of concern about coronavirus transmission, offsetting those who continue to work from home.

Refiners sharply curtailed fuel making in March and April as businesses closed and airlines grounded planes, running their facilities at an average of about two-thirds capacity in mid-April, Energy Information Administration data show. That level is down from about 90% capacity a year earlier.

Companies adjusted their operations to minimize their output of jet fuel and gasoline in favor of diesel, which is used to power the trucks that remained on the road to transport food and other necessities.

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But fuel makers have generated so much diesel that stockpiles are rising, federal data show. Gasoline reserves, while still quite high, are falling as demand inches back up. U.S. gas consumption in the week ended May 1 was up roughly a third from its low four weeks earlier, although still well below demand a year ago, according to the EIA.

“There’s probably a few months before we can really give a better sense for exactly how this is going to play out, but we’re definitely off the lows and seeing some nice improvement,” Timothy Griffith, president of Marathon Petroleum’s Speedway gas station chain, said recently. The Ohio-based refiner is responding by tweaking its systems to generate more gasoline and less diesel.

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Average prices at the pump for regular gasoline in the U.S. fell as low as $1.74 a gallon in late April, their lowest level since February 2016, the depths of the last oil crash, GasBuddy data show.

Prices will likely only go up from here, but gasoline should remain cheap by historical standards for some time as Americans burn through the excess fuel that has built up in storage, said Patrick De Haan, GasBuddy’s head of petroleum analysis.

“There’s a very strong possibility that though prices have started to move up, we may be looking at an overall period of six to 12 months when prices remain somewhat depressed,” Mr. De Haan said.

Write to Rebecca Elliott at