Morgan Stanley Predicts Historic Low in US Gasoline Stockpiles

• Gasoline imports hit an all-time weekly low in the week ending April 10, with May arrivals from Europe expected to stay well below typical levels of 3-4 million barrels
• U.S. refiners continue prioritizing diesel and jet fuel over gasoline due to stronger distillate margins, while exports remain elevated above year-earlier levels
• Morgan Stanley sees upside risk of $10-15 per barrel in margins if geopolitical tensions around the Strait of Hormuz persist, potentially reaching 2022 levels of $40 per barrel

Morgan Stanley Predicts Historic Low in US Gasoline Stockpiles

Morgan Stanley analysts forecast U.S. gasoline inventories will fall to approximately 198 million barrels by end of August, marking the lowest level for this time of year in modern data and below the trough reached during the 2022 energy crisis.

Key Drivers of Inventory Decline:

The sharp drawdown stems from three primary factors. First, gasoline imports have collapsed to an all-time weekly low in the week ending April 10, with May arrivals from Europe expected to remain well below the typical 3-4 million barrels. Second, U.S. refiners are prioritizing diesel and jet fuel production over gasoline due to stronger distillate margins. Third, elevated exports to Latin America, particularly Mexico, and parts of Europe continue to drain domestic supplies.

Market Implications:

July gasoline margins are currently trading near $35 per barrel, approaching the $40 per barrel level implied by Morgan Stanley's inventory forecast. The bank identifies balanced risks around this outlook, with potential upside of $10-15 per barrel if geopolitical tensions around the Strait of Hormuz persist, potentially pushing margins toward 2022 levels.

Conversely, margins could face downward pressure from a faster rebound in imports, easing geopolitical tensions, or signs of demand destruction.

Broader Context:

The tightening gasoline supply is linked to global oil supply disruptions, which are increasingly impacting U.S. markets. The situation reflects a significant shift in the energy landscape, with pricing already incorporating much of the anticipated supply tightness. Traders should monitor import levels, refinery production decisions, and geopolitical developments for further market direction.