Roaring gasoline puts Europe’s refiners in driving seat
LONDON - There’s rarely been a better time to produce gasoline.
Gasoline margins - the profit refiners make from turning crude oil into motor fuel - are at their highest in nearly a decade as a sharp fall in crude oil prices has cut input costs and put more drivers on the road.
Already, the margins or so-called cracks have surpassed $25 per barrel in Europe, their highest since 2007.
But analysts and traders say the cracks, which have been depressed for years by expensive crude and dwindling demand, could have further room to grow as consumption is on track to increase over the summer and as the overhang of the light sweet crude that is ideal for producing it keeps getting cheaper.
“The last six months have been extraordinary,” said John Galante, an analyst with ESAI Energy. The word gasoline, he added, is “on the tip of everyone’s tongue.”
“There are a lot of pillars of strength that the gasoline market is standing on.”
The dual impact of higher demand and lower costs is another lifeline for European refineries, despite a growing overhang of capacity that threatens to force the closure of more units.
Those plants typically rely on American drivers to buy the bulk of the cargoes they produce, as European cars are geared more towards diesel. But with Asian demand “nothing short of phenomenal,” according to Energy Aspects, cargoes from Europe have had their choice of outlets, virtually around the globe.
In countries such as India, demand has grown at double-digit rates for much of this year despite the removal of subsidies to keep it cheaper.
“Much of the Asian middle class arose in the last decade. At current prices, it is still the cheapest gasoline they have ever seen. They’re used to $80 to $120 oil,” said Robert Campbell of Energy Aspects.
Also aiding the strength has been a string of refinery problems worldwide, particularly in countries such as Brazil, Venezuela and Mexico - commodity-reliant economies where economic growth has been limited by the steep oil price drop.
Two key units in Brazil, Rlam and Reduc, were running at significantly reduced capacity earlier this year, while planned and unplanned closures at heavy-hitting Venezuelan refineries Amuay and Paraguana have forced the country to import oil products despite a local economy that has been severely impacted by the more than 40 percent drop in crude.
Mexico’s Pemex is also anticipating its lowest refinery runs since 2011, not including unplanned problems that have already plagued its ageing cache of refineries.
“Throughputs in Latin America, the Mideast Gulf, Africa have not been particularly strong,” Galante said. “That has led to these regions pulling more gasoline than they were.”
Upcoming maintenance at key refineries on the east coast of the Americas and in the Middle East this autumn will extend the pull for cargoes.
And in the background, a building glut of crude in the Atlantic Basin, with at least 10 million cargoes of homeless, gasoline-rich Nigerian crude desperately seeking an outlet, will keep costs low for months, further boosting gasoline margins.
“Traditionally, European margins have stood on one leg, diesel. Now you have ok diesel cracks and superb gasoline cracks,” Campbell said, adding, “We should be relatively well supported through September.”
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