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Global gasoline margins plunge due to overproduction, tepid demand
[NEW YORK/SINGAPORE/LONDON] Refining profits for gasoline are crashing around the world as consumption stalls amid a huge wave of new supplies, resulting in record inventories in Asia, America and Europe.
In the US market, gasoline margins sank to US$5.22 per barrel on Friday, the lowest seasonally since 2009, weighed down by weak demand for the fuel and excess supply.
The low margins, known in the industry as cracks, come as US gasoline stockpiles rose to 259.6 million barrels last week, the highest level on record, according to figures released on Thursday by the US Energy Information Administration. The EIA began collecting such data in 1990.
US investment bank Jefferies said in a note on Friday that the "gasoline glut keeps getting worse".
Light distillate stocks, including gasoline and naphtha, in key hubs (the United States, Singapore, Japan and Amsterdam-Rotterdam-Antwerp) are at their highest since at least 2005, and up by 21 million barrels year-on-year, consultancy FGE said.
Refiners in the United States have overproduced gasoline in recent months as they ran full-out to capture strong margins for distillate fuels such as diesel, market participants said.
"Overproduction of gasoline ensued and now you're in a situation where in various parts of the world gasoline cracks are basically zero or negative," said Zachary Rogers, an oil markets analyst at consultancy Wood Mackenzie.
The overproduction of gasoline is also down to the surge in American shale oil output, which has helped drive US crude production to an unprecedented 11.9 million barrels per day.
US shale oil tends to be light and sweet in its quality, resulting in a high yield of fuels such as gasoline.
"The global oil slate has shifted from majority sour to lighter, sweeter barrels. US shale has been the main driver of this," said Matt Stanley, a fuel broker with Starfuels in Dubai.
Adding to the overproduction by refiners are concerns that fuel consumption will decline because of a global economic slowdown.
In New York Harbor, unusual amounts of tankers are being forced to idle in the region's anchorages until onshore storage opens up, according to three trading sources.
There were at least 12 fuel tankers idling around ports in New York Harbor on Thursday, Refinitiv ship-tracking data showed.
In Europe, gasoline margins dropped to seven-year lows of minus US$3.80 a barrel this week.
"It's hard to make the case for taking a bullish position on the paper market now," a European gasoline trader said.
Traders expect the glut in Europe to ease slightly as refinery maintenance season begins. Work starting on Friday at Europe's largest refinery, Royal Dutch Shell's Pernis, will involve shutting the plant's gasoline unit, among others.
But the restart next month of a huge gasoline-making unit at ADNOC's Ruwais refinery in the United Arab Emirates, idled due to a fire for more than two years, will add to the supply length in the market.
In Asia, gasoline margins in the Singapore trading hub are also negative, hitting minus US$2.12 per barrel on Thursday, the lowest level since 2011.
Singapore's onshore light distillates stocks, which comprise mostly gasoline and blending components, this month hit record highs of around 16 million barrels, data from Enterprise Singapore showed.
Beyond a slowdown in demand, Asia's gasoline glut is a result of surging exports from China, where refineries are producing more fuel than the country can absorb.
Gasoline markets could get some relief in the next few months as refiners perform their spring turnaround, reducing the amount of fuel produced, with some traders expecting slightly longer-than-needed outages as refiners pare stocks.
"I wouldn't be surprised if some maintenance outages last a little bit longer than usual so stocks can be used down a bit," a fuel trader in Singapore said.