U.S. refiners, pipeline operators see strong energy demand in second half of 2022

NEW YORK - U.S. oil refiners and pipeline operators expect energy consumption to be strong in the second half of 2022, even though analysts and industry watchers have warned that demand could falter if the global economy enters a recession or high fuel prices deter travelers.

The company outlooks suggest a stronger view than recent data showing weakness in U.S. fuel demand, particularly in gasoline, where consumption recently hit its lowest level since February, even though this is the middle of the peak summer driving season.

The U.S. gasoline product supplied over the past four weeks fell below 2020's level for the same time of year, when the United States was in the depths of the Pandemic.

Energy Transfer LP and PBF Energy Inc say that energy demand will be strong in the second half of 2022, according to a review of company earnings calls.

Kian Hidari, an analyst at Tudor, Pickering, Holt and Co. said management sees what's going on on the ground, so they're calling out positivity when demand data shows otherwise. It's still a strong environment for gasoline compared to historical levels. U.S. refiners are benefiting from high exports of transportation fuels to Latin America, and plants will run at high utilization rates to restock inventories that were drawn down earlier this year because fuel supply cratered.

The latest data available from the U.S. Energy Information Administration shows that the refiners exports of finished petroleum products were largely in line with the five-year seasonal averages of 3.02 million barrels per day bpd in May. That was more than 65% higher than the May 2020 pandemic low.

U.S. oil output has recovered to 12.1 million barrels of per day, helping boost the pipeline and terminal volumes for many midstream companies for the second quarter from a year ago. Energy Transfer reported a stronger than expected second quarter performance and boosted its guidance for the rest of the year, said Thomas Long, Co-Chief Executive.

Of the 16 midstream companies that reported earnings last week, more than half revised guidance was higher, said James Mick, Portfolio Manager at Tortoise Capital Advisors.

The four week average of implied demand for gasoline fell to just under 8.6 million barrels per day bpd in the week to July 29, its lowest since February, according to the EIA data, though the weekly figures can be volatile.

On Monday, HF Sinclair Corp Chief Executive Michael Jennings said on a call with analysts that they are positive on the outlook for transportation fuels, supported by low product inventories and healthy global demand.

Inflation is going up this year, but economists are less worried about an imminent recession because of the U.S. job growth unexpectedly accelerating in July.

The only U.S. refiner to note some demand tapering in its earnings call was CVR Energy Inc., specifically in the mid-continent, which includes states such as Kansas and Oklahoma, Hidari said. The company said that it has seen some demand destruction as consumers shy away from driving because of retail gasoline prices that have reached over $4 per gallon.