As Americans head into the traditional summer driving window, the U.S. gasoline market faces notably tighter conditions. Domestic demand has remained resilient even after retail fuel prices climbed roughly 40% since the start of the Iran war and have been holding above $4 a gallon. At the same time, refiners are increasingly prioritizing production of diesel and jet fuel, a shift driven by lucrative margins and the need to offset shortages overseas tied to disruptions at the Strait of Hormuz.
The Strait of Hormuz, which handles nearly a fifth of global oil flows, has been effectively closed since the start of the Iran war, contributing to global product imbalances that U.S. refiners are attempting to fill by boosting distillate output. That reorientation has come at the expense of gasoline output, shrinking the domestic buffer that normally helps the United States meet seasonal demand spikes.
Inventories and demand
Government data show that in the first week of June gasoline inventories fell to 215.1 million barrels - the lowest seasonal level in a decade. Overall inventories have declined by more than 34 million barrels since the war began. Distillate fuel oil stocks declined even further, reaching a 23-year low in May.
Analysts say total demand for U.S.-produced fuel this summer could rise to about 9.5 million barrels per day (bpd), driven by solid domestic consumption and continuing exports. That projected demand would exceed current U.S. refining output capacity for fuels, which stands at approximately 9.2 million bpd.
Refinery behavior and product allocation
Refiners in the United States, less dependent on Middle Eastern crude flows than some international counterparts, have been positioned to elevate distillate production and capture stronger margins on diesel and jet fuel. A notable sign of that shift: in late April the U.S. four-week average of jet fuel production topped 2 million bpd for the first time on record, according to the Energy Information Administration.
Exports of distillate products have surged. U.S. shipments of diesel and jet fuel reached 54.65 million barrels in May, the highest on record in Kpler data going back to 2017. Gasoline exports also rose, with 22.52 million barrels leaving the country in May, up from 20.10 million barrels in April. Market participants say this combination of strong exports and steady domestic consumption has left gasoline as the relatively neglected product in refinery slates.
"Balances will definitely be severely tight because (refining margins) incentives still support jet fuel and we all know that Middle Eastern refiners are not coming back quickly," said Sumit Ritolia, lead analyst for refining supply and modeling at Kpler. Tamas Varga, an analyst at PVM Oil Associates, described gasoline as "the neglected stepchild of the refinery slate."
Logistics and international fallback options
Historically, the United States could rely on European imports to help offset regional gasoline shortfalls. That option is now less practical. European fuel supplies are also tight, and shipping costs have risen significantly because of the Strait of Hormuz blockade, making transatlantic movements of product more costly and logistically difficult.
"Even if export rates stay where they are now and don’t rise with the desperate need of countries elsewhere, one can make a case for gasoline inventories to drop by 2 or 3 million barrels per week during summer crunch time," said Tom Kloza, chief energy adviser to Gulf Oil.
Operational strain and risks to supply continuity
Refiners have been running plants hard to capture elevated margins. U.S. refineries operated at 95.3% of capacity in the first week of June, the highest utilization rate in nearly a year. There have been reports of planned fall maintenance being postponed or scaled down, a practice that can sustain near-term output but may raise the likelihood of later plant strain or failures.
"If you defer maintenance, there’s a chance later that you know you’ll pay," said Raul Calzada, refining analyst at Energy Aspects. Signs of stress are already visible: April recorded the highest average unplanned U.S. refinery outages in the last five years, with roughly 483,000 bpd of crude processing capacity offline, according to IIR Energy data.
Analysts warn the margin for error is thin. With gasoline inventories already at their lowest seasonal level in a decade and distillates at a 23-year low, any additional outages or unexpected disruptions could tighten supplies further and put upward pressure on pump prices.
Outlook for the summer season
The low point in gasoline inventories coincided with the start of the summer driving period at the Memorial Day holiday weekend. Peak U.S. summer vacation travel traditionally stretches into early September. Given the current inventory trajectory, continued strong domestic demand, and high export volumes of distillates, market participants caution that the refining and fuel distribution system will be operating with limited buffers throughout the season.
That constrained operating environment leaves little room for error and heightens sensitivity to further outages, logistic disruptions, or demand spikes. Observers say the combination of switched refinery output toward distillates and the inability of some global suppliers to restore normal flows means the U.S. market could face a protracted period of tight product balances unless conditions change.