Product markets in the Atlantic Basin exhibited a mixed performance during May.
The start of the US driving season pushed up gasoline demand, which hit levels
not seen in more than five years. This lent strong support to crack spreads at the
top of the barrel, which were able to offset the weakening seen at the bottom,
allowing healthy refining margins to continue in the region. Meanwhile, Asian
margins strengthened on the back of higher regional demand amid tightening sentiment, fuelled by heavy maintenance in the region.
US product markets continued receiving support from a surge in domestic gasoline
demand, which, with the start of the driving season, hit levels not seen in more than
five years and which allowed gasoline crack spreads to continue on their rising trend.
However, the potential additional gain in refinery margins was limited by the weakening
seen at the bottom of the barrel, with fuel oil cracks falling sharply due to lower
demand. The refinery margin for WTI crude on the US Gulf Coast (USGC) gained 40˘
to average around $10.4/b in May. Meanwhile, the margin for Light Louisiana Sweet
(LLS) crude on the USGC averaged $10.9/b in May, exhibiting a gain of more than
The European product market was supported by higher export opportunities, along
with stronger domestic demand, which provided support to crack spreads and kept
refinery margins healthy in Europe. The refinery margin for Brent crude in Northwest
Europe averaged $6.6/b in May, around the same level as the previous month.
Asian refining margins strengthened during May, as strong regional gasoline and
middle-distillate demand kept crack spreads on the rise. The market was also
supported by expectations of higher demand from the Middle East during the coming
weeks, while the heavy maintenance season should fuel tightening sentiment in Asia.
Refinery margins in Singapore gained 80˘ versus the previous month to average around $5.1/b in May.
Refinery utilization rates in the US continued to rise during May following the end of the
heavy maintenance season. US refinery utilization averaged around 91% in May,
1 percentage point (pp) higher than a month earlier. Despite the increase seen in
refinery runs, it was limited by some refineries that were impacted by operational upsets.
European refinery runs averaged above 87% of refining capacity in April,
corresponding to a throughput of 10.2 mb/d, a level similar to that of the previous
month, with some units off for maintenance in the region. Despite this, runs remained
at about 500 tb/d over the same month a year ago; European refineries have been
increasing throughput in recent months because of export opportunities and healthy
margins. However, the relatively higher runs seen in previous months have led to a
product inventory build in the Amsterdam-Rotterdam-Antwerp (ARA) hub.
Asian refinery levels rose during the first quarter to meet increasing demand in the
region, with Chinese refineries averaging around 10.5 mb/d in March following a peak
in product demand. However, April Chinese refinery throughputs dropped to around
10 mb/d due to the heavy maintenance season. Refinery runs in Singapore for April
averaged around 98%, a level similar to that of the previous month. Meanwhile,
Japanese throughputs fell to 78% of capacity in May due to peaking maintenance in
the Asian region, which also affected refinery levels in India and South Korea, among others, impacting more than 2 mb/d of capacity, which was offline in May.
US gasoline demand stood at around 9.3 mb/d in May. This was about 400 tb/d higher
than the previous month and 380 tb/d higher than the same month a year earlier.
With the start of driving season, gasoline demand exhibited a strong increase, hitting
levels not seen in more than five years, thus supporting crack spreads. Another
supporting factor has been falling inventories, which despite increasing refinery runs
have continued their falling trend due to several FCC outages amid strong domestic
demand and good export opportunities. The gasoline crack spread gained around $4 to average $37/b in May.
Middle distillate demand stood at around 4 mb/d in May, around 70 tb/d higher than the
previous month and 40 tb/d higher than the same month a year earlier. The middle
distillate market continued to be relatively pressured from the supply side by higher
output. This caused US middle distillate inventories to continue on their upward trend.
However, stronger domestic demand, along with rising export opportunities to Latin
America and Europe, allowed crack spreads to recover some ground. The USGC
gasoil crack gained almost $1 versus the previous month to average around $18/b in
At the bottom of the barrel, the fuel oil crack continued weakening due to lower
domestic demand amid increasing inventories despite reduced imports and lower
refinery fuel oil yields. The fuel oil crack in the USGC suffered a sharp loss of $3 in
Product markets in Europe continued to be supported by positive performance at the
top of the barrel, with stronger gasoline export opportunities supporting the crack
spread and offsetting the weakening seen at the bottom of the barrel, thus keeping
refinery margins healthy in Europe. The gasoline market continued strengthening in
Europe on the back of increasing domestic demand amid tightening sentiment in the
market due to maintenance in some secondary units.
Increasing export opportunities to Latin America, mainly Mexico and Argentina, have
supported the market by offsetting lower requirements seen during the last weeks to
West Africa. Asian high-octane gasoline compound requirements have been rising in recent months, mainly in China, which opened European arbitrage opportunities.
The gasoline crack spread against Brent gained 30˘ to remain around $23/b in May.
The light distillate naphtha crack continued its downward trend, losing $2/b due to
weaker demand, as a drop in LPG prices encouraged feedstock replacement in the
petrochemical sector. Meanwhile, heavy cracker maintenance and some outages continued cutting demand for naphtha.
Middle distillate cracks remained stable in a relatively balanced market, with continued
signs of demand recovery and expectations of support from the transportation sector.
Diesel consumption was on the rise in the region, mainly in Spain and Italy.
Potential gains in the gasoil crack were limited by continued pressure from the supply
side, with increasing inflows of ULSD from Russia and the Middle East. However,
increasing supplies were offset by strong domestic demand amid a surge seen in
requirements from Egypt and Algeria. The gasoil crack spread against Brent crude at
Rotterdam showed a slight gain of 20˘ versus the previous month to average around
$15/b in May.
At the bottom of the barrel, fuel oil cracks weakened due to supply pressure, with
increasing Russian inflows into the region. Meanwhile, arbitrage exports to Asia were
limited. The Northwest European fuel oil crack lost more than $1 versus the previous
month’s level to average around minus $12/b in May.
The Asian market strengthened during May as strong regional gasoline and middle distillate demand kept crack spreads on the rise.
The Singapore gasoline crack recovered its upward trend during May on the back of
strong regional demand with increasing consumption being reported from India,
Indonesia and Pakistan. This offset increasing exports from China and Japan, thus
keeping the gasoline market supported. On the other hand, expectations of higher
gasoline demand from the Middle East for the coming weeks have also been fuelling
bullish market sentiment. The gasoline crack spread against Dubai crude in Singapore
gained $3 versus the previous month to average $18/b in May.
The Singapore naphtha crack continued its downwards trend. Fundamentals remained
weak as buying interest from the petrochemical sector slowed, with increased switching
to LPG as a feedstock. Another bearish factor has been heavy maintenance in naphtha
crackers across the region amid expectations of higher Western inflows in the coming weeks.
For the middle of the barrel, gasoil cracks partially recovered ground lost the previous
month on the back of stronger regional demand and workable arbitrage to Europe.
Demand for middle distillates continued showing impressive gains in Asia which, along
with ongoing regional turnarounds, eased the supply overhang. On the other hand,
news that ADNOC will run its Ruwais refinery at a lower rate fuelled tightening
sentiment and lent temporary support to the gasoil market. The gasoil market was
further supported by expectations of growing requirements from Saudi Arabia, from
seasonally higher demand over the upcoming summer period, and from Australia, as
refineries there are in maintenance.
The gasoil crack spread in Singapore against Dubai gained around $1 versus the
previous month’s level to average around $16/b in May.
The fuel oil market continued to weaken during May due to pressure coming from low
demand in the region. However, expectations of decreasing western inflows lent some
support to the market and allowed the fuel oil crack spread in Singapore against Dubai
to average around minus $3.5/b in May. This represented a recovery of more than $1 versus the previous month.