Diesel Drags, Gasoline Gains: Crude Outlook Dims Amid Weak Demand

The search for direction continues for the energy complex with gasoline and diesel prices once again pointing in different directions to start the day.

The EIA’s monthly update released Tuesday increased its forecasted price for crude oil in the back half of the year, but painted a gloomy outlook for U.S. distillate demand as manufacturing and trucking activity were both softer than expected in the front half of 2025, and trade worries are only making matters worse. On the bright(er) side, the agency did increase its forecast for ethane production and exports now that the US and China seem to have figured out a way to continue doing business, and the agency predicts only a modest decrease in US oil output from a peak of 13.5 million barrels/day to 13.3 million at the end of 2026 despite the steady slowdown in drilling activity.

Yesterday the EIA took a closer look at the pending shut down of 2 more California refineries and their potential to send gasoline prices sharply higher in a market that already sees retail prices consistently $1-2/gallon higher than other parts of the county.

Three of the TCEQ’s frequent fliers all reported upsets Wednesday.

Delek’s Big Spring refinery had an upset in an FCC unit and the P66 Borger plant had a Benzene release. Since both of those facilities are located in North West TX, far from the Gulf Coast spot markets, they don’t have any pull on USGC differentials, but adding to the upset at Marathon’s El Paso facility the day prior, they could create some supply tightness in the W. TX and NM markets if operations are forced to slow.

Meanwhile, Marathon’s Galveston Bay (FKA Texas City) facility reported another upset this time in an ultra-cracker unit. That facility still has a hydrotreating unit offline since a fire in June, and Energy News Today is reporting that that unit isn’t expected to attempt restart until the end of July.

Notes from the DOE’s weekly status report:

The government is still having a hard time counting crude oil, as the largest week to week swing in the adjustment factor created a large build in reported inventories despite the changes in imports, exports, and demand all pointing towards a draw. Refinery runs slid a little in all PADDs except 1 but are still at the height of their 5-year ranges in most PADDs and total utilization rates are holding above 94%.

Diesel stocks fell on imports hitting a 2025 low and exports remaining well above average. The increased exports were offset by a larger drop in demand and a bump in production. Traditional diesel inventories remain very low across all PADDs which helps justify the strong backwardation and crack spreads we’ve seen lately. It also makes you wonder how tight diesel stocks would be if demand hadn’t been in the doldrums all year so far with the rapid drop in biodiesel and RD putting more pressure on traditional diesel supplies.

Gasoline stocks posted a draw on exports shooting up to a 2025 high and increased demand headed into the holiday weekend. PADD level inventories are above average on the East and West Coasts and below in the middle of the country, holding total U.S. storage levels about 3mm barrels shy of the 5 year seasonal average, which is still a bit skewed by the COVID lockdown that caused inventories to swell to record levels.