US will slam door on European gasoline exports in three years:
economist
Denver (Platts)--15Apr2013/305 am EDT/705 GMT
Falling demand for gasoline in the US East Coast and the ever-present
promise of more supply to come from the US Gulf Coast look likely to
slam the door on lucrative spot exports of gasoline from Europe to the
US over the next few years, prominent US-based oil economist Philip
Verleger said in a weekly analysis distributed on Sunday.
"The US East Coast will likely provide an outlet for surplus gasoline
produced by European refiners for just three more years," said Verleger.
Verleger estimated that European refiners will only be able to send
"occasional cargoes" to the US by 2016 -- and then only if US Atlantic
Coast production remains unchanged, Caribbean refiners remain closed,
and there is no increase in arbitrage flows from the US Gulf Coast to
the northern US.
European refiners exported 335,000 b/d of gasoline to the US' PADD 1 (a
zone that embraces most of the US East Coast) in January, but if demand
in the region continues to fall at 4% annually, as it has done recently,
those flows could drop to around 200,000 b/d in a year, 100,000 b/d in
two years, and virtually nothing by early 2016, said Verleger.
Verleger, who believes that opportunistic forward selling by European
refiners into rallies in US gasoline futures is a core component of
dynamics within the global crude markets (and particularly Brent
futures), said the gasoline arbitrage could come to an end sooner than
that, particularly if rival supplies to the US Atlantic Coast grow.
If European refiners find fewer windows of opportunity to sell gasoline
to the US, demand for European crude could start to ease off. This could
particularly be felt in Brent crude futures hedging, as refiners
typically look to lock in crack spreads -- the difference in value
between refined products and the crudes that they are made from -- by
buying nearby crude futures and selling forward gasoline futures.
"Crude oil prices are under attack ... we assign the recent decline in
Brent, the world crude price measure, to the very sharp drop in US East
Coast spot gasoline prices," said Verleger.
Spot RBOB prices opened April at $3.09/gallon ($129.78/b), but have
faded quickly through the month to close last week at slightly above
$2.76/gal, a decline of almost 11%. Over the same period, Brent crude
futures have lost 7% in value, moving from $111.08/barrel at the start
of April to settle at $103.11/b on Friday.
Verleger forecast that the closing gasoline arbitrage could spell double
jeopardy for crude suppliers in West Africa, the North Sea and Russia.
Already facing dramatic falls in US demand for Nigerian and North Sea
oil from the US Atlantic Coast as shale crude is railed to market in
ever greater volumes, crude suppliers around the Atlantic Basin may be
shocked to find more closures among European refineries to come if the
US gasoline arbitrage closes as expected.
--Dave Ernsberger,
dave_ernsberger@platts.com
--Edited by Geetha Narayanasamy,
geetha_narayanasamy@platts.com
© 2013 Platts, The McGraw-Hill Companies Inc. All rights reserved.
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