Product markets continued the upward trend during February. The top of the
barrel became more bullish on the back of tightening sentiment, with gasoline
inventories falling in the Atlantic Basin amid healthy cracks at the middle of the
barrel. Additionally, in Asia, refinery margins continued to recover, supported by
strong regional demand and expectations of tightening supplies in the region.
US Gulf Coast (USGC) refining margins continued to rise during February on the back
of widening cracks across the barrel, led by gasoline.
US gasoline strengthened, supported by tightening sentiment due to supply issues on
some shutdowns in the region amid falling inventories. Meanwhile, middle distillate
demand recovered slightly and, along with a reduction in refinery runs, caused
inventories to drop, lending additional support to the market.
The margin for WTI surged by $9 to average around $34/b. The margins for Light
Louisiana Sweet and Arabian Heavy crude on the US Gulf Coast showed a sharp
increase of $7 to stand at around $18/b and $14/b, respectively, in February, thus
recovering the losses suffered during 4Q12.
Refining margins in Northwest Europe and the Mediterranean improved over the month,
supported by the light end of the barrel which has steadily been gathering strength
since early January.
The gasoline crack in Northwest Europe bounced higher on the back of transatlantic
support. The market tightened as higher volumes were exported, mainly to the US East
Coast, while gasoil cracks remained healthy.
The refinery margin for Brent crude in Northwest Europe showed a sharp gain of $3 to
average $6/b in February.
Refinery margins in Asia continued to recover on the back of firm demand supporting
product markets. This allowed the cracks to improve, boosted by expectations of
These developments caused refinery margins in Singapore to gain more than $3 to
average $7/b in February.
Positive developments for product cracks at the top and middle of the barrel outweighed
the pressure from higher Dubai crude prices. Given heavy refinery maintenance
expected over March and April, tight supplies could continue to be a supportive factor
for Asian refining margins over the coming weeks.
Refinery throughputs in the US continued falling, affected by the maintenance
season and some unscheduled shutdowns. This impacted inventories and
supported the market by fuelling tight sentiment in the Atlantic Basin.
US refinery runs averaged 84% of capacity during February, a drop of about 4% in
throughputs. The drop in runs was similar to the previous month and has impacted
gasoline and middle distillate inventories in the US.
In mid-January, US product inventories stopped rising. Gasoline had reached a level of
inventories in line with the five-year average and start to fall again, while middle
distillates remained below average. This, along with a slight increase in demand, has
fuelled bullish market sentiment.
Due to lower margins seen in Europe during the last quarter and some maintenance in
the region, refiners continued their moderated throughputs. Refinery utilization
averaged around 83% in January, 1 percentage point (pp) lower than a month earlier.
However, the recovery of the margins seen during January and February could
encourage refineries to increase runs in the coming months.
In Asia, activity in most of the refineries rose during December and January, while some
refineries have scheduled maintenance to start in March and April.
In Singapore and China, runs remained above 93% of capacity to meet the increasing
demand in the region during the winter season, while Japanese throughputs continued
to increase to over 83% of capacity in February, to meet increasing seasonal utility
US gasoline demand stood at around 8.5 mb/d in February, increasing around
100 tb/d from the previous month but down by around 170 tb/d from the same
month a year earlier.
The gasoline cracks strengthened over the month of February, on the back of lower
refinery run rates, causing production to decline. Some refinery problems and
turnarounds boosted gasoline in the US mid-continent, opening the arbitrage to move
supplies from the US Gulf coast. This helped to alleviate an overhang of supply in the
US Gulf coast region, where demand was thin.
The gasoline demand showed signs of improvement with the 4-week average being
higher than the previous month, although remaining below the y-o-y average. One
positive sign was that, according to the report of the National Automobile Dealers
Association, US car sales in January 2013 jumped by 14.3% y-o-y.
Additional backing came in mid-February when the inventories dropped to below
average with imports declining due to weather-related complications affecting activity at
East Coast ports. In addition, exports of gasoline and gasoline-blending components to
Central and South America continued to be supportive on the back of unscheduled
shutdowns across the region.
The gasoline crack averaged $47/b in February, a sharp increase of more than $12 from
the previous month’s average.
Middle distillate demand stood at around 3.8 mb/d in February, nearly 300 tb/d above
the previous month and around 200 tb/d below the same month a year earlier.
Ultra-light sulphur diesel (ULSD) exports to Europe were down in February, compared
with the previous month, because the arbitrage window was shut as prices in the US
were higher and demand in Europe lacklustre. However, middle distillate cracks
recovered the ground lost last month with domestic demand improving, recovering from
the low level experienced in January.
Middle distillate cracks widened over the reporting period with ULSD and heating oil
cracks strengthening. The rise of the diesel crack could be attributed to the winter
storms generating potential supply disruptions, while heating oil got support from the
lower temperatures seen in some areas.
Additional support came from the supply side as, over the month, lower production
caused inventories to drop to below 125 mb. This created some tightness in the distillate
market, thus fuelling bullish sentiment and increasing net length of the Nymex heating
oil futures contracts to the highest levels seen in nine months. This also reflects the
expectations that rising exports will support prices.
The gasoil crack on the US Gulf Coast gained $5 to stand at around $37/b in February.
At the bottom of the barrel, fuel oil cracks recovered part of the ground lost last month
on the back of high sulphur fuel oil (HSFO) raising demand in the US Gulf coast due to
opportunities to move volumes of HSFO to the USEC. However, the arbitrage
opportunity soon rebalanced the market and capped gains.
The fuel oil crack averaged $17.6/b in February, gaining 60˘ from the previous month.
Product markets continued to recover in Europe as sentiment tightened, fuelling
a bullish mood in the Atlantic Basin, due to supply issues in the US amid lower
The gasoline crack in Northwest Europe surged during February on the back of renewed demand and supply issues from the USEC market, where some units’
shutdowns and closures are tightening the Atlantic Basin market and drawing more
imports from Europe, thus supporting gasoline prices in Europe at unseasonably high
The bullish US gasoline market has been boosted by a drawdown in gasoline
inventories, and the market players have continued to increase net-long positions in
Reformulated Blendstock for Oxygenate Blending (RBOB) gasoline futures in
anticipation of tightening supplies in the coming months.
The gasoline crack spread against Brent crude averaged around $17/b in February, a
sharp gain of $5 versus the previous month.
The Northwest European naphtha crack continued improving, supported by the
European gasoline market. In addition, Asian naphtha offered support with
petrochemical firms running their crackers at high capacity while refinery maintenance
is also expected to constrict supplies over March and April.
Meanwhile, in the domestic petrochemical sector, the expectation of declining demand
due to upcoming cracker maintenance in Europe and a weakening in European
propane prices has left the market structure in deep backwardation.
The middle of the barrel remained stable and the gasoil crack strengthened as the
market has begun to turn its attention to the spring refinery maintenance season, which
will tighten supplies in Europe. The gasoil crack in Northwest Europe gained some
ground over the month as prompt demand from export markets, including North Africa,
overcame weak domestic demand.
Additional support coming from the supply side has helped the ULSD crack improve, as
reduced refinery production in Northwest Europe — due to the unscheduled outage of a
diesel producing unit in Scotland — and a decline in ARA stocks boosted the market.
Furthermore, refiners have been looking to build up stocks ahead of the spring refinery
maintenance season amid lower inflows from the US, where inventories were also
The gasoil structure continued to remain in heavy backwardation on the back of this
prompt export demand. The gasoil crack spread against Brent crude at Rotterdam
gained around $2 to average $17/b in February.
At the bottom of the barrel, both fuel oil cracks continued to recover ground during the
month, as the arbitrage from Northwest Europe and Mediterranean to the US Gulf coast
provided an outlet for some cargoes of high-sulphur straight-run fuel oil (HSSRFO),
supporting prices in Northwest Europe.
Domestic demand remained soft, but European supply has been going to Asia-Pacific,
even though the arbitrage has narrowed during the last weeks, capping the gains in the
The Northwest European fuel oil crack spread against Brent gained $2 in February to
stand at minus $12/b.
The Asian market continued its recovery on the back of firm regional demand
which, along with the expectations of tighter regional supplies, allowed cracks to
The gasoline crack witnessed a sharp improvement over the month. The main
supporting factor for this development was the prospect of tightening supplies over the
coming period in line with the onset of the maintenance season in Asia. On the demand
side, the higher requirements over the Lunar New Year holidays in China have boosted
Refinery turnarounds and expectations of tighter supplies boosted gasoline, with
additional support from stronger regional demand, mainly from Vietnam and Indonesia.
These factors allowed gasoline to show a sharp recovery. The crack spread against
Dubai crude in Singapore gained more than $5 to average $18/b in February.
Light distillate naphtha also showed a significant improvement on the back of healthy
regional demand, mainly from Taiwan, South Korea and Malaysia. This allowed the
crack to increase and move to the positive (increasing from minus $2/b to plus 70˘/b).
Additional support came from the supply side, with the expectations of limited exports
from India and the Middle East contributing.
At the middle of the barrel, the gasoil crack continued improving during February as
sentiment has been lifted by growing requirements from healthy regional demand. This
occurred amid expectations of tightening supplies due to upcoming refinery turnarounds
in the region.
Chinese demand could also be a supportive factor over the coming period, given recent
signs of stabilization in the manufacturing and industrial sectors.
In addition, Singapore’s onshore middle distillate stocks remained below the five-year
average amid expectations of declining imports over the coming weeks.
The gasoil crack-spread in Singapore against Dubai gained almost $3 to average $23/b
A fall in imports from the US and Venezuela pushed Singapore’s inventories of
residual fuels lower, supporting the market. However, less demand due to lower
utilization rates at Chinese independent refiners and the rise in crude prices caused the
fuel oil crack spread in Singapore against Dubai to lose 60˘ to average minus $11/b in