European gasoline nears 2-mth high as excess supply erodes

6 Oct 2022

Quantum Commodity Intelligence - Gasoline cracks in northwest Europe are at their widest since mid-August, as excess supply winds down on firm exports and low regional runs.

Eurobob oxy E5 cracks are above $17/b to ICE Brent this week for the first time since the middle of August, up around $5/b from the end of September and low single digits a month ago.  

Cracks normally fall at this time of year as demand tails off in the autumn and grades switch to cheaper winter blends, so the recovery is counter-seasonal.

Rather than falling, demand has recovered - especially in export markets. 

Firm transatlantic demand has drawn down excess supply built up in northwest Europe at the end of summer, and traders are now describing a very dry prompt market.

Winter non-oxy Eurograde cargoes have been heard around $70/mt above balmo October Eurobob swaps this week, with summer cargoes closer to $120/mt premiums.

It puts cargo premiums almost $60/mt above E10 barges on winter and over $100/mt on summer.

That is enough to cover blending costs up to finished export grades, and transatlantic freight costs, according to traders. 

It is a far cry from only a month ago, when supply outstripped demand at the end of a lacklustre summer driving season.

The switch to winter gasoline grades in September helped shift demand on to a market with much less excess volume, coinciding with a fall in overall European output.

A relatively large maintenance season has impacted over 1.5 million bpd of European refinery capacity this autumn, according to Quantum estimates, in addition to industrial action in France that has closed a further 600,000 bpd.

Refineries are also optimising diesel runs where possible to take advantage of higher margins, reducing gasoline output further.

Inventories are suddenly looking very tight.

US gasoline stocks are at an eight-year low, as domestic demand reached a 2022-high of 9.5 million bpd in the last week of September.

Gasoline stocks in the ARA region have fallen around 20% from the end of August to the end of September and are now at their lowest since the middle of July.