Demand is falling and the tank is still tight

Gasoline demand is falling. The buffer is falling faster.

American refineries ran at 96.8 percent of capacity in the week ending September 11, the Energy Information Administration reported. There is not much room above that.

Gasoline demand is falling. Product supplied averaged 8.8 million barrels a day over four weeks, down 1.0 percent from a year earlier.

Refiners keep closing plants. Valero ended fuel production at its Benicia refinery in the first quarter, removing 145,000 barrels a day.

The framing treats all of this as one orderly story. An industry is shrinking to fit a market that needs less of what it makes.

An industry shrinking to fit leaves slack behind. This one has none.

Gasoline stocks sat 5 percent below the five-year average for this time of year. Demand fell and the cushion fell with it.

Part of the answer is that the demand which refineries serve is not only American. Exports of crude oil and petroleum products hit a record 13.6 million barrels a day in April, according to the agency.

That record followed disruptions to shipping through the Strait of Hormuz. Global buyers turned toward American barrels.

Domestic consumption is the smaller question for a plant deciding how hard to run. Total product supplied in the United States averaged 20.5 million barrels a day, down 0.6 percent from last year.

Capacity fell by more. Operable refining capacity stood at 18.2 million barrels per calendar day on January 1.

That is down more than 250,000 barrels a day from a year before, across 130 refineries. Two fewer plants were counted than the year prior.

The January figure does not include Benicia. That closure came after the snapshot date.

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This is a capacity-demand erosion. Demand falls in fractions of a percent spread across millions of drivers, and capacity leaves in single blocks.

A refinery cannot shrink by 1 percent. It operates or it closes, and the closing takes its whole output out on one date.

LyondellBasell ended refining in Houston in March 2025, removing 263,776 barrels a day. Phillips 66 closed its Los Angeles plant that October, removing another 138,700 barrels a day.

Those two exits took about 400,000 barrels a day of capacity out of the system. A 1 percent decline in gasoline demand is under 90,000 barrels a day.

The gap lands on the plants still standing. They cover it by running closer to their maximum, and 96.8 percent is what covering it looks like.

The barrel is also changing shape. Distillate supplied fell 3.3 percent over the same four weeks while jet fuel supplied rose 4.4 percent.

A refinery cannot reweight itself freely between those products. It has a configuration, and the configuration was built for a demand mix that is moving.

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Vehicle miles traveled. The Federal Highway Administration publishes monthly travel volume, which moves before fuel consumption shows up in weekly supply data. Rising miles would press harder on a system with no headroom, and falling miles would open some. (Source: Federal Highway Administration)

Refinery capacity utilization. The weekly rate shows how much room sits between current runs and the physical ceiling. A rate easing off the mid-nineties would mean the cushion is rebuilding, and one holding there would mean it is not. (Source: Energy Information Administration)

Industrial production for petroleum refining. The Federal Reserve indexes refinery output separately from the energy agency's own counts. A falling index alongside steady demand would confirm capacity is the binding constraint, and a rising one would show the remaining plants absorbing more. (Source: Federal Reserve)

Falling demand is only comfort when the cushion grows with it. When both shrink together, the supply side left first.

Talk soon,
The Playbook Daily