Morgan Stanley: U.S. gasoline inventories may reach historically low levels by the end of summer, exacerbating the imbalance between supply and demand in the fuel market.

With the continuous turmoil in the Middle East affecting energy supply, the US gasoline market is facing an increasingly tense situation. The latest report from Morgan Stanley shows that US gasoline inventories may fall to historically low levels by the end of this summer, further exacerbating the imbalance between supply and demand in the fuel market. Morgan Stanley analysts pointed out that due to supply constraints, US gasoline inventories are expected to fall below 200 million barrels by the end of August. In comparison, data from the US Energy Information Administration (EIA) shows that inventories were around 222 million barrels at the end of April, the lowest level for the same period since 2014. In a base scenario where the current market conditions partially ease, inventories could still drop to around 198 million barrels, setting a new record low for the same period in modern data and potentially reaching the lowest point since October 2012. The US gasoline market was already tight due to increasing demand during the peak summer travel season, and current supply constraints have further exacerbated this trend. Morgan Stanley stated that the US gasoline market is "indeed tight and will tighten further as summer approaches." The current average retail gasoline price in the US has risen to $4.48 per gallon, putting continued pressure on consumer fuel costs. The report highlights one of the main reasons for the decline in US gasoline inventories as the "collapse" of imports on the East Coast. Traditional supply channels from Europe and the Middle East have almost been interrupted, with significant reductions in supply sources from Saudi Arabia, Malaysia, and the Amsterdam-Rotterdam-Antwerp (ARA) region. Meanwhile, the tense situation in the Strait of Hormuz has led to tight supplies of diesel and aviation fuel, significantly increasing their profit margins. This has prompted refineries to prioritize the production of these fuels, leading to a decrease in gasoline output. Furthermore, US gasoline exports remain high, with overseas buyers continuing to absorb supplies that would otherwise flow to the domestic market, while domestic demand remains resilient. With inventories continuing to decline, the price difference between gasoline and Brent crude (i.e. the gasoline crack spread) is expected to widen to $40 per barrel in July. If supply constraints persist for one to two months, inventories may further decline to 190 million barrels, at which point the crack spread could rise to the $45 to $50 range. However, the report notes that if the Strait of Hormuz fully reopens for navigation, the global supply chain is expected to improve, and US gasoline inventories will gradually return to normal levels. Meanwhile, with increased arbitrage opportunities, the economic viability of transporting gasoline from Europe to the US East Coast is strengthening, and imports may gradually recover.