Europe-US gasoline arbitrage opens on strong US demand

London (Platts)--30Dec2005

The arbitrage for sending gasoline to the US from Northwest Europe has
opened as unexpected strong US demand has pushed US gasoline prices higher in
recent days, traders said Friday.

     "The US has caught us all off guard. I was as bearish as anyone about
December gasoline and I have certainly been surprised. The US wants gasoline
and they are paying big numbers to get it," one London-based trader said.

     Statistics released Thursday by the US Department of Energy revealed an
unexpectedly large draw from gasoline stocks but traders in Europe believe
that that only partially explained strong US prices.

     Having predicted negative crack spreads for December and a potential glut
of physical barrels as stocks were potentially cleared ahead of year-end
inventory reviews, traders have been surprised by what has turned out to be
limited availability of gasoline in Europe and cracks at nearly $7/bbl.

     Traders said the fortunes of European gasoline prices continued to be
determined by the US, adding that there was little fundamental strength in
Europe. "Europe is tightening but it is only by virtue of the US taking
barrels," one trader said. "What is clear looking forwards is that with a
$7/bbl crack in December gasoline will have a year (in 2006) like we haven't
seen before," the trader added.

     Potential arbitrage opportunities to move high sulfur cracked fuel oil
from the Baltic Sea to the US Gulf Coast also improved towards year-end with
traders saying the arbitrage was close to opening.

     Traders anticipated increased demand and stronger prices in the US Friday
on the back of a number of USGC refinery shutdowns during the first quarter of
next year.

     Sources said bids were heard Thursday at around March WTI -$19/bbl
[around $263/mt] while European January swaps hovered around $250/mt.

     "Singapore demand in January is weak and the USGC arbitrage borderline..
but it's all a question of alternatives," said one trader, as the heavy flow
of Baltic high sulfur fuel oil supply continues to weigh on Rotterdam.

     Shipping sources suggested several companies were looking towards the
Suezmax freight market to ship cargoes loading in the first half of January.

     Naphtha traders in Northwest Europe are expecting high paraffinic cargoes
to be pulled across the Atlantic in January. The pull is expected to come from
refiners looking to reform the high quality naphtha in to gasoline. "This is a
demand pull from the US rather than a push of cargoes from Europe," said one
trader.

     Earlier in December the lack of buying activity in Northwest Europe had
led to naphtha cargoes being sent across the Atlantic as the best option, even
though the arbitrage economics did not work on paper. Traders explained this
as the 'best worst option' meaning that sending naphtha to the US meant that
traders lost less money on a cargo than trading the cargo in Europe.

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at http://www.platts.com/Request%20More%20Information/

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