(Bloomberg) -- As the US nears its all-important summer driving season, refiners are gearing up to run as hard as they can — even as roadblocks from feedstock shortages to the upcoming hurricane season threaten to get in the way. 

With hefty margins, strong demand and tight supply, the incentive is there to run close to full out this year. Domestic refineries were operating at an overall refinery utilization rate of 91.8% the week ended May 13. Two areas of the country, the US Gulf Coast and East Coast, are out in front with run rates of 95% heading into what is expected to be the strongest summer since before the pandemic devastated demand in early 2020. 

Tight supply is a main factor encouraging higher run rates. Distillate inventories fell to the lowest in 17 years earlier this spring. Gasoline stockpiles are the lowest since December. At the same time, companies are posting soaring margins.

“Margins are telling those who can to run full out,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston. “Over the next couple of weeks, I expect refinery rates to increase as they exit the turnaround season; especially in the Midwest and Gulf Coast you will see some push toward 100%.”

Read more: The US can’t make enough fuel and there’s no easy fix ahead 

Even so, run rates as a whole in the US may fall just short of pre-pandemic levels, averaging about 90% versus 91% in 2019, according to Energy Aspects, a London consultancy. Feedstock shortages due to the embargo on Russian imports are contributing to the lower rate for this summer season. Meanwhile, the ramp up for many sites has been slowed by a heavy winter-spring turnaround season that is extending into June in some areas.

Refineries have also experienced a spate of power losses, unplanned equipment shutdowns for repairs and issue-plagued restarts of major production units following maintenance. Exxon Mobil Corp.’s Baton Rouge refinery, for instance, will be down until at least early June after a sudden loss of steam power over the weekend. Recent capacity closures are also weighing down the run rate.

And more summer refinery troubles could be ahead. A large section of North America from the Great Lakes to the West Coast is at risk of blackouts as the electric grid is stressed by heat, drought, shuttered power plants and supply-chain woes. Power supplies in much of the US and part of Canada will be stretched, as demand accelerates after two years of pandemic disruptions. Running refinery units at high rates in the heat of summer can be risky.

“They have their foot off their brakes as much as they can,” said John Auers, executive vice president at Turner, Mason & Co. energy consultancy and advisory in Dallas. “You run the risk that if you run too hard, chances of an unplanned event could be great.”

The upcoming Atlantic hurricane season is projected to bring 19 major storms out of the tropics and to be among the most active years on record, according to a forecast from Colorado State University. Any storms that make landfall along the refinery-packed Gulf Coast may take out capacity for weeks from flooding, equipment damage and loss of power.

Read more: There won’t be enough energy supplies to go around this summer

Any fuelmaking capacity that comes offline this summer, even briefly, will add to the ongoing market tightness. More than 1.2 million barrels of daily US refining capacity was targeted for closure the last few years due to a shifting emphasis away from petroleum fuels and the high cost of upgrading to meet tightening environmental regulations, according to Turner, Mason & Co. By the end of 2023, that number could swell as high as 1.69 million barrels if LyondellBasell Industries NV follows through with its plan to shut its Houston refinery by the end of that year. And there’s little relief planned.

“Some may have shut prematurely because of cash crunches,” Auers said of refinery closures. “But they’re not going to be building new capacity. There are energy transition forces causing people to look to the future.”

While strong domestic and export demand and record margins have encouraged refiners to maximize diesel output, often with only a percentage point or two leeway to tweak the mix, the focus is likely to shift more toward gasoline for the summer. Refiners have long-standing supply contracts to fulfill; gasoline margins have caught up with diesel margins and even at times surpassed them.

“They’re typically set up to make more gasoline this time of the year,” said Robert Campbell, head of oil products research at Energy Aspects. “So the issue is when will they start building diesel for winter.”

Refining margins (in $/bbl): gasoline cracks (as of May 20)

  • Maya US Gulf coking at $36.88
  • LLS US Gulf cracking at $30.09
  • WCS US Midcontinent coking at $58.67
  • East Coast Forcados cracking at $25.77
  • US West Coast WCS crude oil 3-2-1 crack spread at $69.19
  • Nymex 3-2-1 front-month crack spread at $46.55
  • For more crack spreads, see CRCKs

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