The declining likelihood of a spike in summer fuel demand is prompting more US refiners to hedge as a means of locking in profits amid the threat of cuts.
Commercial players, which include refiners, have increased their short gasoline positions to at least 200,000 contracts this year, according to the Commodity Futures Trading Commission. This is more than the average of 180,000 in the second half of last year.
“Hedging activity has picked up a lot over the past few months,” said Vikas Dwivedi, global oil and gas strategist at Macquarie Group.
The profit margin that refiners earn from turning a barrel of crude into fuels has collapsed as the US and China show signs of economic weakness. Demand for diesel, often seen as an indicator of industrial activity, is faltering globally. In the US, demand for gasoline just fell by nearly 900,000 barrels a day as recessionary fears dampen hopes of a bumper summer.
Ironically, hedging could compress margins further as fuel makers protect revenue by buying crude and scarce gasoline and diesel. “Eventual refinery cuts may be necessary to rebalance the product and crude markets,” Dwivedi said.
With gasoline demand still below pre-pandemic levels, AEGIS Hedging has advised end users and refiners to brace for a worsening demand outlook.
Some fuel makers aren’t happy with the number they’re blocking, said AEGIS Vice President of Fuels Zander Capozzola. But it’s “like trying to catch a falling knife.”
