While the final days of the European driving season typically mark the end of peak gasoline demand, average loadings continue to break records as market participants redouble their efforts to ease exceptionally tight supply conditions across the continent. Intra-continent flows still account for the majority of gasoline arrivals in the region, but distillate cracks across Europe still incentivize domestic refiners to prioritize diesel production over gasoline. Non-European gasoline loadings pointed towards Europe have provided some relief, but the trajectory of the European market is still uncertain.
Non-European loadings shift towards Atlantic Basin
As of September 9, global loadings of gasoline/blending components pointed towards Europe averaged 1.2mbd, 60% above the five-year seasonal average, to mark the strongest volume in the Vortexa dataset. As gasoline flows into Europe extend their counter-seasonal movements, 85% of incoming barrels remain associated with intra-Europe-trade.
Despite their relatively small volumes, an increase in non-European loadings beginning in June has provided some relief to the market. Arrivals from Northeast Asia and the Red Sea initially dominated non-European flows amid a partial lift in China’s refined products export ban and Saudi reroutes away from Houthi threats in the Bab-el-Mandeb. More recently, however, these barrels have been replaced by volumes from the Atlantic Basin, specifically South American East Coast and the Gulf of Mexico. In Brazil, favorable conditions for ethanol have freed up gasoline barrels for export while average US refinery utilization rates of nearly 100% (EIA) support record exports for both gasoline and other transportation fuels.
Distillates overshadow strong gasoline cracks
While the Northwest European Eurobob oxy crack slipped beneath the $30/b mark for the first time in a month on September 9, the market pointed to an uptick in Brent rather than easing conditions for gasoline (Argus Media). Even with weaker margins, the crack is still 30% above the year-ago figure. When evaluated on its own, these margins should incentivize European refineries to adjust their output to prioritize light ends production. When evaluated against distillate cracks, however, gasoline margins lose much of their appeal. Northwest European cracks for diesel and jet fuel are approximately triple the value of gasoline margins (Argus Media), and the market is already preparing for the seasonal uptick in diesel demand that will surely be affected at least to some degree by the global market’s loss of Russian diesel barrels. While Europe does not import Russian diesel, Moscow’s ban on exports of the fuel have resulted in a global supply crunch, forcing Russia’s typical customers to compete with both European and global buyers for supplies from swing producers.
Backwardation remains wide despite volatility
Despite a record 11mb of gasoline/blending components currently laden on vessels headed to Europe, the trajectory of the European gasoline market is still unclear. This week, the September-October backwardation was reported at ~$15/b on September 8 only for the value to narrow to ~$10/b the following day (Argus Media), highlighting uncertainty for short- and medium-term prices. With market participants accustomed to a backwardation of $2-5/b, however, this market structure further proves that the end of the summer driving season does not necessarily mean significant change for the European gasoline market.
Source: Vortexa
