Wholesale US asphalt prices reached 14-year highs in 2022 on the back of strong infrastructure investment, rising crude values and a short motor fuels market before falling rapidly at year-end.
Waterborne asphalt prices in the US Gulf coast and midcontinent reached $620/st and $650/st, respectively, in July, the highest levels since 2008. Both prices then lost nearly 50pc of their value by December, hitting levels not seen since the first half of 2021.
The early 2022 asphalt price climb was spurred first by rising crude prices, driven by Russia's invasion of Ukraine. At the same time US refiners, already facing a tight motor fuels market, were left with little incentive to produce asphalt. The US embargo on Russian oil imports in March that followed cut off the supply of M100 fuel oil to the US Gulf coast — a key coking feedstock for refiners in the region — forcing some refiners to turn to other coker feedstocks like asphalt.
The tightening of lighter refined products markets in the US was further exacerbated by ongoing supply chain issues, making refinery repairs and turnarounds more difficult, according to one market participant.
As a result, coker yields — a measure of profitability if residual asphalt is used as coker feedstock — spiked in March, reaching record premiums over asphalt prices of $140/st in the US Gulf and $186/st in the US midcontinent, according to Argus calculations.
Additionally, the paving season started off strong in the first half of 2022, with asphalt demand rising to a 14-year high.
The strong demand and reduced asphalt production resulted in asphalt inventories dipping below the five-year range by the beginning of the summer paving season, according to US Energy Information Administration (EIA) data. This in turn helped lift wholesale asphalt prices in the Midwest and US Gulf even higher.
Railed asphalt in the Rockies also reached a 14-year high of $612.50/st in July. Rockies prices were boosted following the April shutdown of ExxonMobil's 58,000 b/d facility in Billings, Montana, and remained elevated throughout the paving season.
Prices plummet in 2H
Wholesale asphalt on the US East coast reached 14-year highs earlier in the paving season as well, but values were pressured lower quickly following the rapidly opening transatlantic arbitrage. The price of asphalt fob the Mediterranean fell to a discount of $200/st in July and again in September on the back of abnormally strong production. This pressured east coast asphalt prices below historical norms relative to asphalt in other US regions.
Asphalt prices in other regionswould see a rapid decline in the fourth quarter, driven by falling crude prices and a widening light-heavy crude differential. Nymex light sweet crude futures fell to about $75/bl by the end of 2022 from about $120/bl in June. Asphalt prices declined by an even greater magnitude, with midcontinent barge values falling to about $300/st from $650/st over the same period.
Asphalt prices were further pressured by rising inventories as the light-heavy crude differential remained wide, reaching $30/bl in early October. Refiners were incentivized to run heavier crude, which brought additional asphalt onto the market.
By the end of 2022, US asphalt inventories rose above the five-year range to 25.5mn bls, a 12-year high.
Rising supply could continue to pressure wholesale asphalt prices lower in some regions in early 2023, but strong infrastructure demand and expanded budgets will likely lift prices ahead of this summer's paving season.
Some market participants also think crude prices will rise in 2023, which would limit asphalt's downward momentum.
