US refiners stretched thin by domestic demand, surging exports: CERA analysts

North American refined product markets have tightened further in recent weeks, with inventories falling to fresh lows and export flows accelerating beyond already-elevated levels, as the ongoing disruption to Middle East supply continues to reverberate through global trade, according to S&P Global Energy's June North America Short-Term Outlook for Refined Products.

While CERA's May outlook highlighted the structural shift in trade following the shutdown of the Strait of Hormuz, the June update points to a more acute phase of the disruption: inventories are now critically low, price gains are broadening across products and US refiners are increasingly stretched balancing domestic needs with surging export demand.

"US diesel inventories plunged again in May, hitting multi-decade lows as surging exports tightened domestic balances," analysts said, underscoring the severity of the drawdown.

Total US distillate stocks fell to just above 100 million barrels in late May, the lowest level in more than two decades, with forecasts pointing to a drop below that threshold in June.

Platts assessed the benchmark US Gulf Coast ULSD outright price up 2.82 cents on May 28 at $3.5096/gal, breaking a two-day losing streak that saw prices drop more than 27 cents, S&P Global Energy data showed.

Exports exceeding expectations

Exports, meanwhile, have continued to exceed expectations. What had previously been characterized as strong is now being described as unsustainable at current levels.

The key driver remains the same — disruptions linked to the conflict in Iran and the effective closure of the Strait of Hormuz — but the impact is intensifying as the outage persists longer than initially anticipated.

"Elevated export demand is expected to persist ... as Europe, Latin America and Asia work to replace barrels lost due to the Strait of Hormuz closure," analysts said, adding that restocking efforts could prolong the imbalance.

One notable shift from the prior outlook is the growing tightness in gasoline markets, as inventories drop to five-year lows just as peak summer demand begins.

"Peak summer driving demand is arriving just as US gasoline inventories fall to five-year lows, giving gasoline cracks additional room to strengthen," the report said.

Refiners' continued bias toward distillate production has further constrained gasoline supply, amplifying price gains. Gasoline cracks surged sharply in May, reflecting both lower inventories and resilient demand despite higher retail prices.

Across the barrel, price strength has become more pronounced. Gulf Coast gasoline cracks jumped by more than $16/b month over month to around $30/b, while diesel cracks pushed above $50/b, supported by tightening global balances.

Platts assessed benchmark USGC CBOB 87 4.39 cents higher on May 8 at $2.9384/gal, halting a two-day slide that saw assessed values drop more than 30 cents.

"Ongoing geopolitical tensions in Iran and the closure of the Strait of Hormuz continue to significantly disrupt product supply," analysts said. "Current supply-demand fundamentals suggest very tight product markets in the near term."

Jet fuel dynamics have also shifted compared with earlier expectations. While previously identified as one of the tightest segments, the latest data show inventories holding up due to record refinery yields.

"US jet fuel stocks ... have held up despite surging exports due to unusually high jet fuel production," the report said.

However, that balance is expected to reverse in the coming months. Analysts now see jet inventories beginning to draw as seasonal demand rises and exports remain strong.

"Without a resolution to the Strait of Hormuz outage, US jet balances are expected to tighten over the next few months," the analysts added.

USGC benchmark jet fuel was assessed narrowly higher on May 28, rising 0.07 cent to $3.1921/gal.

Another key evolution is the increasing strain on the US system itself. Strong refinery runs and record yields are no longer fully offsetting the pull from export markets, leaving less buffer in domestic inventories across regions.

The report also highlights that arbitrage flows, particularly diesel from the US Gulf Coast to Europe, remain firmly open, reinforcing the US role as the marginal supplier in an increasingly fragmented global market.

Looking ahead, the outlook suggests the market is entering a more fragile phase, where any additional disruption —whether geopolitical or operational— could drive further price spikes.

"Our base case assumes a gradual recovery of flows through the Strait of Hormuz... though the timing remains uncertain," analysts said, warning that inventories are likely to remain at or near seasonal lows through the summer.

For market participants, the message is clear: the global refining system is not just adjusting to disruption, it is being stretched by it, the CERA analysts said.

Platts and CERA both are part of S&P Global Energy.