US fuel inventories remain tight despite high refinery utilization, while wider gas spreads support refiners, Guyana boosts Exxon Mobil's (XOM) cash flow potential, and new Permian pipelines bolster growing natural gas liquids demand, UBS said in a note on Wednesday.
The US Department of Energy reported a 100,000-barrel crude inventory build for the latest week, below the 600,000-barrel consensus estimate and the 4.2-million-barrel American Petroleum Institute estimate.
Gasoline inventories fell 2.54 million barrels over the same period, compared with a 700,000-barrel consensus draw and a 3.2 million-barrel decline in the American Petroleum Institute estimate.
Diesel stocks declined 2.23 million barrels, versus a 1.6-million-barrel expected draw and a 500,000-barrel decline in the American Petroleum Institute estimate.
US refinery utilization rose 0.2 percentage point over the week to 97.4%, UBS said, adding that such elevated rates typically do not last and could tighten fuel markets as seasonal maintenance increases.
US diesel inventories now stand 14.4% below the five-year average and 9.5% below last year's level, while gasoline stocks sit 6% below the five-year average and 7% below 2025 levels.
PADD 3 diesel inventories are 10% below the five-year average, while PADD 1, PADD 2 and PADD 5 stocks are 34.9%, 4.3% and 5.8% below their respective five-year averages.
Gasoline inventories are 5.5% below the five-year average in PADD 3, 5.6% lower in PADD 1, 7.8% lower in PADD 2 and 6.5% lower in PADD 5.
Q3 2026 quarter-to-date RIN-adjusted refining margins average $42.79 per barrel in the Mid-Continent, $46.27/bbl on the West Coast and $47.62/bbl in the North Atlantic.
The Gulf Coast's RIN-adjusted crack averaged $43.88/bbl in Q3 of 2026 quarter to date, versus $30.45/bbl in Q2 and $15.26/bbl in Q3 2025.
European natural gas prices have risen in recent weeks as tensions in the Middle East and offline liquefied natural gas facilities, including assets in Qatar, tighten regional markets, while US prices remain relatively insulated, UBS said.
The spread between European TTF and Nymex Henry Hub gas prices has widened to about $20 per million British thermal units from roughly $10/MMBtu two months ago, improving the competitive position of North American refiners.
UBS estimated that a $5/MMBtu increase in gas costs, if North American refining assets were exposed to European gas prices, would add about $1.5 billion in annual costs for Valero (VLO), $1.8 billion for Marathon Petroleum (MPC), and $922 million for Phillips 66 (PSX).
Exxon Mobil's Guyana production averaged about 900,000 barrels per day in Q2 2026, while the Errea Wittu, the project's fifth floating production vessel, remains on track to start by year-end.
The Exxon Mobil-led group is advancing the Longtail development toward a final investment decision and has begun evaluating a potential ninth floating production vessel.
The group has recovered about $55 billion in invested capital and operating costs, reducing the legacy costs subject to recovery, although new spending will continue adding to the cost bank.
UBS expects Guyana's lower capital intensity and higher entitlement volumes to boost free cash flow, with production potentially exceeding the 2030 target of 1.3 million b/d and generating over $6 billion annually for Exxon Mobil and over $4 billion for Chevron (CVX) at $70/bbl Brent.
Multiple new gas-processing plants from Targa Resources (TRGP) and Enterprise Products Partners (EPD) in the Delaware and Midland basins, along with new EPD fractionators at Mont Belvieu, will require additional Y-grade pipeline capacity, UBS said.
The new pipelines will connect Permian gas plants with fractionators expected to start over the next two to three years, supporting rising global demand for liquefied petroleum gas and ethane.
Planned expansions include BANGL and Coastal Bend in Q4 2026, Bahia in Q4 2027, and Speedway in Q3 2027, adding Permian Y-grade takeaway capacity.
UBS said the projects should ease natural gas liquids takeaway constraints and link rising Permian production with international LPG and ethane demand, while supporting Gulf Coast petrochemical feedstock costs.