Product markets in the Atlantic Basin were supported by relatively higher US
gasoline demand amid tightening sentiment fuelled by outages of some fluid
catalytic cracking (FCC) units, which caused inventories to drop. Steady middle distillate demand amid lower inflows to the region prevented European margins from dropping, while margins in the US were boosted by falling WTI prices. In Asia, weaker light distillate demand, amid increasing supplies with the restart of several FCCs, caused refinery margins to weaken further.
US product markets strengthened during August as gasoline market fundamentals got support from the tightening environment generated by some FCC outages amid falling inventories. The drop in WTI prices also played a role in boosting margins. The refinery margin for WTI crude on the US Gulf Coast (USGC) showed a sharp gain of more than $3 to average $11.8/b in August. Meanwhile, the margin for Light Louisiana Sweet (LLS) crude on the USGC averaged $15/b during August, exhibiting a gain of around $4.
European refining margins retained the recovery seen since last month as middle
distillate crack spreads were supported by the supply side on the back of lower inflows to the region and steady demand. The refinery margin for Brent crude in Northwest Europe showed a gain of more 40˘ to average $4.5/b in August.
Asian refining margins continued to weaken during August as an increase in gasoline supplies with several FCC units restarting caused the gasoline crack spread to drop sharply, which, along with the weakening naphtha market, kept pressure on light distillate cracks, thus contributing to continued weakening of refinery margins in the region. Refinery margins in Singapore remained at the low level seen last month, falling 17˘ to average minus 10˘/b in August.
Refinery utilization rates in the US continued at very high levels with refinery utilization averaging 92.0%, which is a slight drop of about 0.7 percentage points (pp) versus the previous month. This decline was due to some refinery outages, mainly in the PADD-3, which generated a temporarily tight environment.
Healthy margins encouraged increasing refinery runs over the last months, however
the upward trend was affected during August by some unscheduled conversion unit
shutdowns at several refineries.
European refinery runs averaged around 77% in July, corresponding to a throughput
of 9.9 mb/d of refining capacity, 400 tb/d higher than the previous month due to some
recovery seen in the margins since June. However, refinery runs remained at low levels
as European refiners continued to feel pressure from increased competition and weak
In Asia, slower demand growth moderated refinery runs in several countries, mainly
China and South Korea, while in India, unplanned shutdowns amid some conversion
projects in the refineries have cut refinery throughputs. With several refineries being
back from maintenance, an uptick in crude intake is expected within the Asia region in
the coming months.
Chinese refinery levels averaged 9.7 mb/d in July, about 400 tb/d lower than in June.
Refinery runs in Singapore for August averaged around 93%, falling 1 pp versus the
previous month. Japanese throughputs averaged 87% of capacity in July, 9 pp higher
than in July, with several refineries coming back from maintenance.
US gasoline demand stood at around 9.0 mb/d in August, about 40 tb/d higher than
the previous month and around 50 tb/d lower than the same month a year earlier.
The gasoline crack showed a slight recovery from the downward trend seen in July on
the back of a tightening environment and falling crude prices.
The market got support from the supply side with lower production as a result of
several catalytic cracker units shutting down on the USGC, which tightened the
Falling inventories, mainly in PADD-3, also supported the market on the back of higher
exports to Latin America amid USGC exporters sending more volumes to satisfy
Midwestern requirements and gasoline players reducing inventories ahead of the
switch to winter-grade gasoline quality in mid-September.
The gasoline crack spread saw a slight gain of 50˘ to average $25.8/b in August.
Middle distillate demand stood at around 3.9 mb/d in August, broadly unchanged
from the previous month and 200 tb/d above the same month a year earlier.
The middle distillate market exhibited a sharp recovery this month, and crack spreads
strengthened, with support coming from the supply side amid a decline seen in distillate
stocks starting in August. Other supporting factors were lower gasoil production in the
US due to some refinery outages as well as lower distillate yields, which stayed below
30% during the last weeks.
Additional support came from the export side as demand from C&S America has drawn
several ULSD cargoes from the USGC, mainly to Brazil. On the other hand, diesel
volumes to Europe have been on the rise, in line with the improvement seen in the
The USGC gasoil crack saw a sharp gain of more than $5 versus the previous month’s
level to average around $20/b in August.
At the bottom of the barrel, the fuel oil crack showed a vibrant recovery despite the
higher availability of VGO due to some fluid cracker outages, which contributed to an
increase in catalytic cracking margins.
Firm bunker fuel demand in the USGC along with an increase in contract deliveries to
cruise ships in Seattle lent support to the markets.
The fuel oil crack in the USGC gained more than $6 versus the previous month’s level.
In August, product markets in Europe continued to recover from the previous month as
crack spreads received support from the supply side with lower inflows to the region
and moderated refinery runs.
The gasoline crack fell sharply during August due to a lack of export opportunities,
pressuring the European market.
The gasoline market retreated in Europe since mid-August, despite the draw seen in
US gasoline inventories, fuelling hopes of higher exports from Europe at the beginning
of the month, however since mid-August, market support vanished as arbitrage from
Europe to the US East Coast was seen as somehow limited with the US driving season
demand approaching an end.
Additionally, weakening gasoline arbitrage to West Africa exerted further pressure on
the market, as a result of excess volumes of European gasoline.
The gasoline crack spread against Brent showed a loss of $3 to average $18.3/b in
The light distillate naphtha crack lost the ground recovered last month due to the lack
of an arbitrage window to Asia, as it has been partially suppressed by shipping
availability and expectations of lower demand in Asia in coming weeks, fuelling bearish
Middle distillate cracks continued their recovery trend during August on the back of a
tight market amid a continued decline in crude prices.
The ULSD crack in Northwest Europe continued recovering during August on the back
of a tight environment fuelled by refinery outages in the region amid lower export
volumes of ULSD from Russia. Exports out of Primorsk declined due to operational
Higher demand for diesel ahead of refinery shutdowns in Europe underpinned prices
and boosted margins in the region, thus allowing the diesel crack spread to recover to
a healthy level.
The gasoil crack spread against Brent crude at Rotterdam gained more than $2 versus
the previous month’s level to average around $15/b in August.
Looking forward, increasing inflows in the coming weeks to Europe are expected from
the US, Russia and the Middle East as new refineries’ ULSD volumes will be exerting
pressure on the gasoil market in the region.
At the bottom of the barrel, fuel oil cracks continued to weaken over the reporting
month despite some increases seen in bunker demand as higher sweet African crude
inflows to the region kept pressure on the market. However, a tight sentiment in the
market due to lower runs in the region amid expectations of higher arbitrage
opportunities to Asia prevented the cracks from falling further.
The Northwest European fuel oil crack remained around the same as the previous
month’s average at around minus $13/b in August.
The Asian market continued to be relatively weak during August as increasing gasoline
supplies pressured the market and caused the gasoline crack to fall sharply, thus
offsetting the recovery seen at the middle of the barrel and causing refinery margins to
continue falling in the region.
The Singapore gasoline crack suffered a sharp drop during August due to pressure
from the supply side amid weakening demand in several countries in the region.
Gasoline supply side exerted pressure on the back of increasing availability with
several cargoes being offered from Taiwan´s refinery while an increase in Singapore
light distillate stocks also fuelled bearish sentiment. Additionally, the bearish sentiment
was boosted further with the expected increase in supplies as several FCC units
restarted operation within the region.
On the other hand, the gasoline market lost support from the demand side with
depressed demand in some countries such as Indonesia and Japan and diminishing
demand from India, thus impacting the gasoline market in the region.
The gasoline crack spread against Dubai crude in Singapore showed a sharp drop of
more than $6 to average $7.5/b in August.
The Singapore naphtha crack lost the ground it recovered last month as market
sentiment became bearish due to expectations of oversupply with heavy arbitrage
inflows and condensate splitters in the region staring up ahead of the upcoming
ethylene cracker turnarounds in the region.
At the middle of the barrel, cracks recovered some ground on the back of steady
demand in some countries amid export opportunities.
The gasoil market was supported from higher export opportunities as buying interest
emerged outside of the region, mainly from South Africa and the Middle East, following
refinery maintenance. Additional support came from stronger demand in Australia and
The supply side was relatively balanced as expected higher exports from India,
following improved monsoon rainfall, were offset by reduced exports out of China.
The gasoil crack spread in Singapore against Dubai gained $2 versus the level of the
previous month to average around $16/b in August.
The fuel oil crack recovered in Singapore on the back of tightening sentiment despite
weak bunker and power demand.
Fuel oil cracks ticked up over the month with the crack spread being supported by a
temporary shortage in the availability of lower viscosity bunker fuel in Singapore. The
tight environment was boosted by expectations of lower exports of 380 centistokes
(cSt) fuel oil from the Middle East.
The fuel oil crack spread in Singapore against Dubai gained more than $3 to average
minus $10.3/b in August.