The average price of gasoline in the U.S. hit yet another record high on Monday, at $4.596 per gallon, according to AAA. With the summer driving season just days away, starting Memorial Day weekend, prices at the pump are expected to go even higher. How high could depend on how much gasoline is shipped into the East Coast aboard tankers.
“U.S. driving season is looming large,” said tanker brokerage BRS in a report published Monday. “U.S. Atlantic Coast gasoline inventories currently stand at 51 million barrels, their lowest level since 2014 and their lowest level for this time of year since at least the turn of the millennium.
“This is worrying, since generally inventories build before the start of the driving season before drawing during the summer,” warned BRS. “This suggests that in order to halt inventory draws, Atlantic Coast market participants need to draw in more gasoline cargoes [by sea] than usual over the coming months.”
The tanker brokerage said that over 500,000 barrels of European-sourced gasoline were loaded in April aboard 60 ships bound for the U.S. Ship-tracking data suggests that May’s inbound tanker flows “should comfortably exceed this level and could reach their highest level since last year.”
Could Jones Act be waived?
If gasoline prices reach more extreme highs, BRS sees the possibility of a summer Jones Act waiver. The Jones Act requires that gasoline loaded in the U.S. be transported to domestic destinations by U.S.-built, U.S.-owned, U.S.-operated tank vessels.
BRS believes capacity limitations of the Jones Act-compliant tanker fleet, together with limitations of the Colonial Pipeline connecting the Gulf to the East Coast, could prompt a Jones Act waiver allowing foreign-flagged ships to temporarily carry U.S. gasoline.
“Although such waivers are usually issued in response to hurricane-related disruptions to supply chains, this year we believe waivers could be issued due to political pressure stemming from high prices, which could exceed $6 per gallon by mid-summer,” said BRS.
Gasoline is primarily shipped from Europe to the U.S. East Coast aboard medium-range (MR) tankers, vessels with capacity of 25,000-54,999 deadweight tons. If the Jones Act were waived, foreign-flag MR tankers now used to ship U.S. gasoline exports to Latin America could switch to East Coast destinations.
Tanker demand effects
Tanker demand is measured in ton-miles: cargo volume multiplied by distance. The ton-mile effect of a Jones Act waiver is unclear, said BRS, because it depends on which Latin American voyages are displaced as gasoline goes to the highest bidder. It noted that a Houston-New York voyage lasts seven days, which soaks up more MR tanker capacity than a Houston-Mexico trip (two days) but much less than a Houston-Brazil voyage (15-25 days).
The Energy Information Administration currently predicts U.S. 2022 gasoline consumption of 8.91 million barrels per day. That’s up 1% year on year but still 4% below pre-COVID consumption in 2019.
“This assumes that high U.S. gasoline prices will clip demand growth, offsetting the impact of pent-up holiday driving demand following two years of COVID restrictions, and that work from home will continue, offsetting the positive impact of higher employment,” noted BRS.
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