USAC Gasoline demand looking better than margins are suggesting
Global gasoline margins have weakened recently despite moving closer toward driving/gasoline season. We look at the recent downturn and what it means in the context of the changing refining dynamics in the Atlantic Basin.
US gasoline margins have started off the gasoline season below last year’s levels by nearly $3/bbl and the transatlantic arb (on paper) has been slow to open despite relatively low freight rates (TC2) and low gasoline stocks in PADD 1 (EIA).
However, as we look closely at PADD 1 seaborne gasoline imports, we see a similar yet lagged pattern compared to last year. Having started this year 100 kbd lower than 2023, the sudden sharp rise in gasoline imports mimics last year’s trend despite entering March 2024 with inventories at the bottom of the five year range and 7% lower y-o-y (EIA). Low stocks were partly due to the Atlantic Basin refinery outages which witnessed a slow return keeping average April run rates at 83.3% vs 91.4% y-o-y (EIA). March also brought historically low stocks in PADD 3 and lingering refinery turnarounds in the region, a major point of resupply to PADD 1.
At a time of softening US gasoline margins during April and May, European gasoline margins moved higher y-o-y ($3/bbl) incentivising refineries to optimize gasoline production and blending operations amid poor petchem demand. We can see that loadings since January increasingly stay within Europe (blue bar) likely for these blending operations. Reformer margins have been higher on average y-o-y between Jan – May in both Northwest Europe and US Gulf Coast incentivising refiners to run naphtha through the reformers to produce high valued gasoline blending components, namely reformates.
For now, this trend of prompt European gasoline moving toward the North American market looks set to continue as we can see volumes pointed toward PADD 1 rising. In addition, Europe could see another strong domestic demand season for gasoline supporting margins during the summer.
However, in the near term, we are moving closer toward the start up of the 650 kbd Dangote refinery in Nigeria which will begin producing gasoline in June according to Argus Media. Total gasoline production is expected to reach 360kbd eventually. Nigeria imported 220 kbd of gasoline Jan-May compared to 315 kbd last year where over 70% of it originates from Europe. Even the partial start up of this refinery is cause for concern for Atlantic Basin refineries, especially in a world where Mexican seaborne gasoline demand has shown signs of dampening recently due to higher regional refinery runs and the looming start up of its own refinery at Dos Bocas on the East Coast.
