Waterborne gasoline and blending component imports into the US are currently expected to total 27mn bl in March, according to Vortexa preliminary data, up by 16% from the same month last year.
At the start of 2019, January’s import number already pointed a strong start to the year; a 16% rise over December and the highest import month since October. January also showed a significant build of 24% on the year. The gasoline and blending component data cited in this note comprises light ends streams considered part of the wider gasoline and blending components category, including naphtha and select condensate grades.
Looking at longer term trends, US imports hit a three-year peak of almost 33mn bl in May 2018 and then declined in the subsequent two quarters. This is in part due to the seasonality of gasoline demand. A strong import month prior to the peak summer driving season is typically followed by falling imports through Q3 and Q4 ’18.
Vortexa data reflects this seasonality; US-bound departures peak each year late in Q2, in time for delivery in the peak summer ‘driving season’ in Q3.
Imports had been trending lower after May 2018 but preliminary numbers for March point to an uptick, amid a seasonal fall in domestic gasoline inventories in recent weeks. If the latest March estimates hold, the trend for the first quarter of 2019 would represent an increase of 24% from the same time last year.
So far in 2019, Irving Oil’s Saint John refinery remains the top source of US imports, as was the case in 2018. Established in 1960 and situated on the Canadian east coast, the refinery produces over 320,000 b/d of clean products, and in the first two months of this year supplied around 106,000 b/d of gasoline into the US. Over the same period, Amsterdam and India’s Sikka supplied 44,000 b/d and 42,000 b/d, respectively.
In 2018, around 280,000 b/d of gasoline and blending-type imports were supplied from northwest Europe on the transatlantic arb. Of that, around half came from the Netherlands and the UK combined, with most of the volume moving on Handymax and MR tankers. Shouldering Irving Oil’s Canadian refinery, Valero’s Pembroke refinery is the main European producer of gasoline for the US arb.
Gasoline vs. middle distillate trends
Over the past 18 months or so, middle distillates—diesel and jet fuel—have been in demand and driven healthy refinery margins. As a result, gasoline and naphtha have been in oversupply, almost as a by-product, and their values have weakened dramatically.
Naphtha ‘cracks’—the margin derived from the value of a refined product versus crude—have been negative for some time. Even more unusual is that naphtha cracks have been trading below the value of fuel oil cracks; the latter product is historically viewed as a waste product of the refinery system.
Gasoline cracks in the US Gulf coast have also been hit hard and turned negative in January—trading at the lowest level in five years, according to the US Energy Information Administration (EIA). Diesel cracks, by contrast, remain robust. The EIA included the below graphic of Gulf coast gasoline and distillate crack spreads in its recent analysis:
Source: U.S. Energy Information Administration (March 2019).
The fall in values described in the EIA note correlates with Vortexa’s fall in import numbers since May 2018: the price action reflects the market rejecting imported volumes at the time. Cracks were further pressured by healthy global inventory levels.
At the end of the year, with IMO 2020 coming into full force, the world could potentially see 3.4mn b/d of new distillate demand coming on line. As refineries go into max-distillate mode and increase crude intake, even more gasoline could hit the market since typically, a US refinery will produce two parts gasoline for every one part diesel. Gasoline imports will be even more closely tracked in coming months.