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US Product Markets and Refinery Operations – March 2013

Source: OPEC 4/20/2013, Location: North America

US gasoline demand stood at around 8.5 mb/d in March, a level similar to that of the previous month, but down by around 170 tb/d from the same month a year earlier. The gasoline cracks managed to keep part of the gains achieved over the month of February, on the back of a tightening environment amid falling inventories.

Gasoline demand showed signs of improvement, with the 4-week average holding to the previous month’s level, due to a rise of 3.6% in US car sales in February. However, it remained below the year ago in the same month, as efficiency gains outstripped car sale increases.

Gasoline demand strengthened on the East Coast as the availability of winter-grade product tightened, limited by producers starting the transition to summer-grade quality. Additional backing came from a continued fall in inventories, which dropped to the typical average level, with imports declining as importers faced high renewable identification number (RIN) costs and redirected gasoline cargoes away from the US.

RINS are tradeable certificates showing compliance with US biofuel mandates. The price of ethanol certificates for 2013 has risen over $1.05/rin, from just 7¢/rin at the start of the year. Suppliers often cannot blend enough ethanol into gasoline and buy RINs instead, to meet their mandatory requirements.

The gasoline crack averaged $47/b in March, keeping with the same level as the previous month’s average.

Middle distillate demand stood at around 3.8 mb/d in March, holding at the same level as the previous month and around 50 tb/d above the same month one year earlier. Middle distillate cracks narrowed over the reporting period due to a lack of demand and weaker export opportunities, losing the ground gained in February.

Ultra-low sulphur diesel (ULSD) exports to Europe continued falling in March, because the arbitrage window was limited and European demand lacklustre. Domestic demand, although recovering from the low level experienced in January, remained below 4 mb/d. The cold spell that hit the Midwest and the Northeast exerted a strong impact on natural gas, causing a surge in prices to an 18-month high and the withdrawing by operators of big volumes from inventories. Accordingly, money managers have increased their bullish bet on the Nymex Henry Hub futures contract to the highest level in several years.

Nevertheless, support for heating oil from the lower temperatures seen in some areas has not been strong enough to cause an improvement in the middle distillates cracks. Supply-side support has been relative; middle distillate inventories remaining below the seasonal average level provided some tightening support. However, forward demand cover days have been in line with the 5-year average, due to lower demand. Additionally, exports to Latin America have dropped, with Argentina and Brazil reducing gasoil imports.

The gasoil crack on the USGC exhibited a sharp loss of $7 to stand at around $30/b in March.

At the bottom of the barrel, fuel oil cracks lost the ground gained over the last months. Bunker demand cooled during the last weeks due to thin shipping activity, causing heavy bunker fuel prices to fall.

The fuel oil market also came under pressure from the arrival of arbitrage cargoes in the region. Around 2 mb arrived at the USGC, where inventories have been on the rise.

The fuel oil crack averaged $15/b in March, losing more than 2$ over the previous month.

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