Product markets in the Atlantic Basin strengthened in November on the back of
positive performance at the top of the barrel. Gasoline and naphtha were
supported by strong regional demand amid export opportunities, thus
supporting margins and offsetting the lack of winter support.
Meanwhile, Asian margins exhibited a strong recovery on the back of higher
winter seasonal demand for heating fuels in the region and stronger
petrochemical sector support at the top of the barrel.
US product markets strengthened slightly during November despite pressure from the
supply side with refineries increasing runs and inventories on the high side. Stronger
gasoline demand amid some temporary tightening sentiment lent support to the top of
the barrel, which offset the weakening seen at the middle of the barrel due to the lack
of winter support, allowing the margins to recover.
The positive performance seen at the top of the barrel, along with export opportunities
to Latin America allowed the USGC refinery margin for WTI crude to gain 50¢ to
average around $3.3/b in November. Meanwhile, the margins for Light Louisiana Sweet
(LLS) crude averaged $7/b in November, continuing at a similar level seen in the
previous month.
Product markets in Europe exhibited a recovery in November on the back of strong
gasoline demand and tightening sentiment along with strong export opportunities to the
petrochemical sector, giving support to the top of the barrel. In addition, the middle
distillates market exhibited a recovery on the back of a balanced market with reduced
inflows into the region. The refinery margin for Brent crude in Northwest Europe
showed a sharp gain of more than $2 versus the previous month to average $5/b in
November.
Asian product markets showed a recovery during November on the back of stronger
winter seasonal demand, which lent support to middle distillate crack spreads. This,
along with the positive performance seen in naphtha with the healthier petrochemical
sector in the region, allowed refinery margins to strengthen.
Refinery margins in Singapore increased by $2 to average $6.7/b in November.
Refinery operations
Refinery utilization rates returned to a rising trend worldwide following the peak of the
heavy maintenance season in several regions during October, which put more than
8 mb/d of capacity offline during the month.
Refinery utilization in the US averaged above 90% in November, corresponding to
16.1 mb/d, a level that is 650 tb/d higher than a month earlier. This recovery in the
refinery runs was mainly in the USGC and mid-continent. Higher refinery runs have
caused product inventories to be on the rise again, thus keeping the market under
pressure.
European refinery runs averaged around 90.6% of refining capacity in October,
corresponding to a throughput of 10.6 mb/d, up by 20 tb/d from the previous month,
and more than 450 tb/d higher than the same month a year ago. European refineries
have continued to increase throughputs, taking advantage of healthy margins and
export opportunities.
Asian refinery utilization dropped during October with refinery turnarounds in several
countries, however, since mid-November, some of them are back online. Chinese
independent refineries have reportedly been increasing runs above 80 pct despite only
being allowed to serve the domestic market. Refinery runs in Singapore for October
averaged around 80%, around 3 pp lower than a month earlier. Meanwhile, Japanese
throughputs increased to 81% of capacity in November, which is around 3 pp higher
than a month ago. With the end of autumn maintenance approaching in the region,
refinery runs should be on the rise to catch up with the seasonal increase in demand in
the coming months.
US market
US gasoline demand stood at around 9.2 mb/d in November, around 40 tb/d lower
than the previous month and 240 tb/d higher than in the same month a year earlier.
US gasoline demand remained stronger y-o-y, allowing the gasoline crack spread to
strengthen despite pressure from the supply side with refineries increasing runs
following the maintenance season and inventories on the rise amid several secondary
units resuming operations after the resolution of some operational issues both in the
Midwest and the US Gulf Coast (USGC).
Some support came from temporary tightening sentiment fueled by the prolonged
maintenance activities at Irving Oil’s St. John refinery in Eastern Canada.
Additional support came from export opportunities to Latin America, mainly to Mexico,
with rising seasonal demand.
The gasoline crack spread gained more than $1 versus the previous month’s level to
average $18.4/b in November.
Middle distillate demand stood at around 3.9 mb/d in November, around 100 tb/d
lower than in the previous month and around 100 tb/d lower than in the same month a
year earlier.
The middle distillate market continued to be pressured from the supply side with
increased production amid high inventories.
Middle distillate inventories recovered their upward trend with an increase of around
4 mb during the month of November, thus remaining above the five-year average level
and keeping pressure on the market.
The demand side has not supported the market as the end of the harvest season has
been pressuring demand in the US midcontinent. Meanwhile, heating fuel demand
remained thin in the US East Coast (USEC) where warm weather has dented heating
oil demand.
The USGC gasoil crack lost 50¢ versus the previous month to average around $11.6 /b
in November.
At the bottom of the barrel, the fuel oil market recovered some ground in November
on the back of stronger domestic demand, mainly as refinery feedstock for secondary
units in the USGC boosted demand for vacuum gasoil (VGO) amid the return of several
catalytic cracker units.
The fuel oil crack on the USGC gained more than $1 in November.
Demand of fuel oil from Mexico has been reported on the rise while, in South America,
it has been slowing with the Brazilian fuel oil demand weakened due to falling power generation demand and recent port congestion and vessel cancellations at several
Brazilian ports resulting as a consequence of the workers’ strike during November.
European market
Product markets in Europe exhibited a recovery in November on the back of strong
gasoline demand and tightening sentiment along with strong export opportunities to the
petrochemical sector, which provided support to the top of the barrel. Meanwhile, the
middle distillate market remained relatively balanced with reduced inflows into the
region.
The gasoline market received support during November through stronger domestic
demand amid export opportunities across the Atlantic, as the USEC supplies remained
tight, in part due to persistent issues at the St. John refinery, thus making a home for
European gasoline.
Northwest Europe (NWE) gasoline cracks strengthened as stronger domestic demand
was reported along with tight supplies of finished gasoline in the region in recent
weeks.
Another bullish factor has been the steady volumes exported to West Africa.
The gasoline crack spread against Brent gained around $2 to average around $21/b in
November.
The additional potential upside was limited by expectations of higher inflows with the
restart of Middle East refining capacity and expectations of rebounding regional supply.
The light distillate naphtha crack continued to strengthen during November, gaining
more than $3, supported by increasing domestic demand for naphtha in the
petrochemical sector despite the Moerdijk cracker shutdown. Meanwhile, the stronger
Asian market has been drawing western volumes.
The gasoil market exhibited a recovery in Europe during November despite high
inventories on the back of expectations of colder weather arriving in Europe in the last
weeks along with lower inflows into the region from Asia and the US.
Arrivals from the US have been limited as arbitrage is working better for the Caribbean
and South America. Meanwhile, the strengthening seen in Singapore gasoil crack
spreads has encouraged more Asian barrels to remain within the East of Suez.
ARA hub gasoil inventories have remained at record-high levels, fuelling bearish
sentiment to the market, however rising water levels on the Rhine allowed more
products to flow inland, easing the pressure in the last weeks.
The gasoil crack spread against Brent crude at Rotterdam gained around $2 versus the
previous month to average around $13/b in November.
At the bottom of the barrel, despite lower domestic demand, the fuel oil market
showed a slight recovery as VGO requirements for cracking units in the US and Europe
along with some arbitrage to Asia lent some support to the fuel oil market.
The NWE fuel oil crack recovered 60¢ versus the previous month’s level to average
around minus $14/b in November.
The fuel oil market continued to be pressured by bearish fundamentals with ARA
inventories on the high side amid increasing Russian exports.
Asian market
The Asian market showed a positive performance during November supported by
strong demand seen at the top of the barrel. In addition, increasing requirements for
seasonal heating provided a boost to winter demand. Furthermore, the maintenance
season was still impacting some countries in the region, resulting in tightening
sentiment in the market.
The gasoline market remained supported on the back of strong demand in several
countries, such as in Vietnam and India, thus offsetting the lower buying interest seen
in Indonesia, which has seen an increase in domestic gasoline output with the start-up
of new refining facilities during the last months.
Singapore’s gasoline crack remained almost flat during November in a relatively
balanced market with the tightening environment being fuelled by the maintenance
season, which is still impacting some countries in the region such as Taiwan, where
conversion units remained with limited gasoline production, although this situation is
expected to ease in the coming weeks with the end of maintenance. The gasoline
crack spread against Dubai crude in Singapore averaged around $14.7/b in November,
a similar level to the previous month.
The Singapore naphtha crack continued to improve over the month, gaining more than
$4/b, supported by stronger demand from the petrochemical sector, with several
cracker units returning from maintenance amid naphtha’s discount versus LPG, which
continued to widen significantly, thus encouraging feedstock switching, which is typical
at this time of the year.
At the middle of the barrel, the gasoil market exhibited a vibrant recovery during
November as the market was supported by strong regional winter gasoil requirements
amid tightening sentiment fuelled by the maintenance season.
Additional support came from strong demand reported from Vietnam and the higher
gasoil requirements for post-monsoon industrial activity in India and Pakistan.
The gasoil crack spread in Singapore against Dubai gained more than $2 versus the
previous month to average around $17/b in November.
The additional gains were capped by reduced arbitrage to Europe, causing some
cargoes to be diverted from South Korea to Singapore.
In the Asian fuel oil market, support came from the continued drop in Singapore’s
inventories amid expectations of slower inflows into the region, with delays being
reported in the arrival of several cargoes and the Middle Eastern fuel oil balance being
seasonally tightened.
Additional support came from stronger demand reported from South Korea, which
offset falling demand in Japan. The fuel oil crack spread in Singapore against Dubai
recovered around $2 to average approximately minus $6.6/b in November.
