Product markets continued losing ground in April due to sharp declines in light and
middle distillate cracks, pressured by increasing supplies, along with weaker demand
worldwide. Refinery margins in Asia fell mostly for the top of the barrel, while the WTI
price recovery caused a strong correction in US margins.
Meanwhile, despite product market fundamentals remaining weak in Europe due to
lacklustre domestic demand, the drop in the Brent crude price allowed European
margins to recover.
US product cracks narrowed across the barrel versus WTI crude, with high losses at
the top and middle end of the barrel, as, in addition to the weaker product
fundamentals, the WTI price remained stable, while other benchmark crudes fell more
than $6 during April.
The gasoline cracks lost the ground gained over the last two months due to poorer
demand perspectives in the market and higher volumes from Europe exerting pressure
on the United States East Coast (USEC).
Meanwhile, middle distillates have been losing ground due to weaker demand and
reduced export opportunities to Europe, and the bearish sentiment led to the largest net
short positions in Nymex heating oil futures, not seen since the beginning of 2007.
The margin for WTI dropped sharply by more than $6 to average around $18/b, while
the margins for Light Louisiana Sweet (LLS) remained around the same level of the
previous month of around $10/b, as weaker product markets were offset by the drop in
the LLS crude price.
The refinery margin for Arab Heavy crude on the US Gulf Coast (USGC) showed a
slight gain of $1 in April to average $ 9.4/b.
Refining margins in Northwest Europe recovered some ground during April, with most
support stemming from the bottom of the barrel. Weak product market fundamentals,
due to lacklustre domestic demand, were more than offset by the drop in the Brent
crude price, allowing the refinery margin for Brent crude in Northwest Europe to show a
recovery of $1 to average $4.3/b in April.
Despite weaker domestic demand in Europe, some support came from the switch from
winter to summer grade gasoline, fuelling a temporarily tight sentiment. Additionally,
gasoline was supported by strong exports to the USEC and to Latin America, which,
along with falling Brent crude prices allowed gasoline crack spreads to gain slightly.
The middle of the barrel remained relatively well balanced. Temporary signs of
increasing demand in some countries and falling inventories offered some support.
Refinery margins in Asia continued losing ground as bearish developments in light and
middle distillates outpaced a slight uptick at the bottom of the barrel, causing refinery
margins in Singapore to drop almost $3 to average $1/b in April, the lowest level seen
Product prices weakened on rising supplies, as increased production following the
return of refineries from maintenance weighed on prices, causing the light distillate
cracks to plunge to the lowest levels seen in several months, impacting the refinery
margins in the region.
Refinery throughputs in the US continued to hold at moderated levels, with the
maintenance season ending. Refineries were adjusting their throughputs and
operational modes to the development in demand and inventory levels.
US refinery runs averaged 85% of capacity in April, rising 1.1 percentage point (pp)
versus the previous month.
The margins for WTI have been falling during the last months and gasoline inventories
remained above average at the start of the driving season. This situation could
encourage refiners to keep utilization rates at moderated levels in order to reduce
inventories in order to improve margins.
Demand in the European market has been hit by the region´s weak economic outlook,
and increasing inflows into the region have kept the market well supplied, even during
the spring maintenance period, causing the margins to remain low. This has caused
refiners to continue their moderated throughputs and refinery utilisation averaged
around 82% in March. Despite the end of the maintenance season, moderated
throughput levels are expected to continue due to the weak light distillates market in the
In Asia, several refineries are returning from their scheduled maintenance during March
and April. Some refineries have moderated runs as demand has been weaker and
distillate inventories have continued to rise. Chinese refineries have dropped runs to
levels below 86% in March and April.
In Singapore, runs continued above 93%, while Japanese throughputs fell to 79% of
capacity in April, with refiners continuing to boost gasoil yields and refineries in Osaka
and Ichihara returning from maintenance.
US gasoline demand stood at around 8.5 mb/d in April, a level similar to that of the
previous month, but down by around 300 tb/d from the same month a year earlier.
The gasoline cracks lost the ground achieved over the last two months due to poorer
demand perspectives in the market and some pressure coming from higher volumes
from Europe as the return of refineries from maintenance pushed utilization rates up.
Demand-side worries have also been hitting the market, as money managers
consistently cut their net length on the Nymex RBOB futures contracts. Demand for
winter-grade gasoline on the US East Coast (USEC) fell as stocks were run down to
make room for summer-grade material arriving from Europe, with several cargoes being
sent from Europe, exerting pressure on East Coast prices. Imports slowed later in the
month with arbitrage narrowing, as the New York Harbor market lost its premium to
Prices for RINs – which are used to show compliance with biofuel mandates – remained
firm, despite some volatility generated by the expected corn harvests resulting in a drop
in physical ethanol in the Chicago market.
The gasoline crack lost $7 during April to average $40/b.
Middle distillate demand stood at around 3.7 mb/d in April, around 100 tb/d lower than
the previous month and around 20 tb/d below the same month a year earlier.
Middle distillate cracks continued to narrow over the last month due to a lack of demand
and weaker export opportunities. Domestic demand, although recovering from the low
level seen in 1Q13, remained below 4 mb/d.
Production rose on the back of higher refining runs and inventories reversed the falling
trend showed during the 1Q13 to recover 3 mb in April, as imports contributed to a
rebalancing at the middle of the barrel, with forward demand cover rising slightly while
implied demand fell.
On the other hand, ultra-low sulphur diesel (ULSD) exports to Europe continued falling,
amid lacklustre demand.
The cold spell that hit some parts of the country has boosted natural gas prices at
Henry Hub to above $4/mbtu, the highest level seen in months. Accordingly, money
managers have increased their bullish bets on Nymex Henry Hub futures.
However, this bullish environment has not been shared by heating oil, which has not
received sufficient support to provide any improvement in the middle distillates cracks.
Nymex heating oil futures saw money managers piling in the biggest net short positions since the beginning of 2007. Nymex heating oil futures have switched to a 10ppm
sulphur grade from the high-sulphur specification starting with the May contract.
The gasoil crack on the USGC exhibited a sharp loss of $7 to stand at around $23/b in
April. Although weak demand has impacted this performance, the relative stronger WTI
crude prices this month also played a role in the narrowing crack.
At the bottom of the barrel, fuel oil cracks continued losing ground affected by weaker
demand along with higher crude prices. Bunker demand continued to weaken due to
thin shipping activity, causing heavy bunker fuel prices to fall.
Activity at the ports of New York and New Jersey has been decreasing during the last
months with steeper declines recorded at the ports of Savannah and Los Angeles in
March, respectively, according to data from the Georgia Port Authority and Port of Los
While demand for bunker remained weak – impacting HSFO – LSFO received some
support from the outage at the La Plata refinery, with Argentina looking for additional
fuel oil to meet its impending power requirements. Another supporting factor was the
increasing consumption of straight run fuel oil (SRFO).
Meanwhile, the New York fuel oil market weakened amid uncertainty surrounding
power utility demand following the end of winter.
The fuel oil crack averaged $13/b in April, losing more than $2 from the previous month.
Product market fundamentals remained weak in Europe due to lacklustre
domestic demand. However, the drop in the Brent crude price allowed the
margins to recover.
The gasoline crack in Northwest Europe managed to stop declining from the previous
month, supported by strong exports to the US East Coast market amid Brent crude
prices continuing to fall.
During April, European gasoline crack spreads showed a slightly gain as the market
was supported by exports to the US, with several fixtures being sent to the USEC.
However, as US demand has not been as strong as could be expected, exporters have
started looking to Latin America, where demand has been stronger. Despite the weaker
domestic demand in Europe, some support came from the switch from winter to
summer grade gasoline, fuelling a temporary tight sentiment.
Meanwhile, limited support has come from exports to West Africa, with Nigeria´s state
fuel regulator having announced second quarter gasoline import permits.
The market also received pressure from inventories at the ARA hub increasing by 4%
m-o-m to reach the highest level in years.
The gasoline crack spread against Brent crude slightly recovered by 60˘ from an
average of $14.2/b in March to around $14.8/b in April.
Northwest European naphtha continued weakening due to low demand and limited
arbitrage to Asia-Pacific.
Demand from gasoline blenders remained subdued and had a knock-on effect on
naphtha markets, pulling Northwest European values down.
The drop in naphtha prices lifted downstream ethylene and propylene margins for
petrochemical producers, but this failed to stimulate additional demand as prices for
alternative feedstock propane have also started to decline from seasonal winter highs.
Naphtha prices fell as plentiful supply was exacerbated by a lack of arbitrage
opportunities to Asia-Pacific, particularly from Northwest Europe.
Additionally the demand from petrochemical producers is expected to fall as spring
maintenance begins in Europe and Asia-Pacific.
The middle of the barrel continued losing ground due to increasing supplies; despite
temporary signs of increasing demand in some countries, and falling inventories,
Some support came from the steady demand from North Africa, causing the crack to
show a temporary positive upside swing, which received additional support from the
cold snap in Northwest Europe during the first week of April, extending the heating
season somewhat longer than usual.
The Northwest Europe diesel crack has continued its downward trend, despite demand
picking up in key markets such as Germany and France; however the crack continued
to soften as supply outweighed demand in a poor domestic market.
Demand in the Mediterranean market has been hit by the region´s weak economic
outlook, with hydrocracking capacity expansions in Europe and Russia keeping the
market well supplied, even during the spring maintenance period.
The gasoil crack spread against Brent crude at Rotterdam lost around 40˘ to average
$15.1/b in April.
At the bottom of the barrel, both fuel oil cracks – HSFO and LSFO – continued to rise
on the back of Europe-to-Asia Pacific arbitrage, and mainly due to the decline in Brent
crude prices. Both fuel oil grades showed an improvement over the month, as strong
Asian markets were supporting European fuel oil prices. Western arrivals to Asia were
up 1.8% in April compared to the previous month.
On the other hand, shipments of straight-run fuel oil (SRFO) to the US took some
Russian supply out of the European market, which also received some support from the
regional reduced supply of low-sulphur straight-run fuel oil.
The Northwest European fuel oil crack spread against Brent gained more than $1 in
April to stand at minus $9.9/b.
Looking forward, exports to Asia could continue lending support with the approach of
the air-conditioning season and demand picking up for electricity generation.
The Asian market continued bearish on the back of increasing supplies
outpacing the regional seasonal weak demand, causing margins to fall, with the
exception of fuel oil, which remained strong on the back of tight supply.
The gasoline crack continued its downward trend during April. The decline came on
the back of increasing supplies of light distillates amid rising stocks in Singapore and
regional demand remaining relatively weak.
The gasoline crack fell on thin demand and increasing supplies, with an Indian refiner
selling spot cargoes for the first time this year. Some volumes from India were diverted
to Asia-Pacific from the Middle East, where imports from the Mediterranean arrived.
The gasoline crack saw more pronounced losses. Although some buying interest was
observed from Vietnam and South Korea, this failed to provide a boost for the gasoline
crack, due to relatively high availability of the motor fuel in the region.
Despite the turnarounds at export-oriented refineries in Northeast Asia limiting
availability, the expectations of higher supplies from Taiwan weighed on the market,
while fresh demand from regional importers did little to lend support to the gasoline
The gasoline crack spread against Dubai crude in Singapore lost more than $6 to
average $9/b in April.
Light distillate naphtha continued falling and the crack moved further into the negative,
falling from minus $3.5/b to minus $8/b, while ample supply in the region remained a
concern for the market as sizeable arbitrage arrivals from the West are expected to
retain pressure on the supply side.
The Asian naphtha market continues to struggle to find any positive supporting factors,
with the prospect of growing supplies weighing heavily. The market currently expects
the arrival of around one million tonnes of western naphtha in May while the spring
refinery maintenance season is expected to continue easing in coming weeks.
This would be the fourth month in a row to see imports above one million tonnes as
refiners in Europe, especially the Mediterranean, seek outlets for their excess supplies.
At the middle of the barrel, the gasoil crack continued losing ground due to supply
side pressure amid weak demand.
The Asian gasoil crack fell to a near twelve month low. Lacklustre demand in key
importing countries, China´s emergence as a significant exporter due to mainly slowing
domestic diesel demand and ample supply availability in the region are seen as the key
factors for this development.
The end of winter reduced demand for heating fuel in northeast Asia, causing gasoil
production to rebound, with refiners continuing to boost gasoil yields , thus weighing on
the middle distillates market. Another bearish factor has been the subdued demand
from key import countries like Indonesia.
The gasoil crack losses were capped due to fundamentals – i.e. buying interest from Sri
Lanka, Philippines and Vietnam – thus preventing the market from weakening further.
In addition, the pick-up in exports from Singapore to Australia, Africa and the Middle
East, where gasoil demand rises in the summer to meet higher power consumption,
also helped support the market.
Looking ahead, further support may come from China where diesel prices were lowered
at the end of last month, although this may be counterbalanced by increased regional
output in line with the return of refineries from maintenance.
The gasoil crack spread in Singapore against Dubai fell $3 to average $16/b in April.
At the bottom of the barrel, fuel oil cracks strengthened mostly due to lower regional
fuel oil production and a shortage in low viscosity blending components. These factors
outweighed concerns about high arbitrage volumes expected from the West over the
coming month, which have been estimated at around 4.7 million tonnes.
The shortage of low-viscosity fuel oil in the Asian market may be partly due to lower
exports from the Middle East as countries in the region have seen a typical seasonal
ramp-up in demand from the power sector.
Despite lower demand and the continuing steady inflow of residual fuel oil imports to
the region, the limited supplies of cutter stock needed to blend cargoes into bunker fuel
supported prices and this, along with the drop in crude prices, caused the fuel oil crack
spread in Singapore against Dubai to gain more than 70˘ to average minus $7/b in