Refinery margins in the Atlantic Basin saw mixed movement in July, while US margins recorded solid gains
as crack spreads for all products increased due to healthy domestic demand. Margins in Europe weakened
in response to product oversupply, limited export opportunities and higher feedstock costs. Meanwhile,
margins strengthened in Asia, supported by healthy seasonal demand.
US product crack spreads improved during July despite higher WTI prices m-o-m. Total gasoline demand
continued to increase to reach around 9.7 mb/d, based on preliminary weekly data, to the highest level of
total consumption seen in 2017. Additionally, middle distillate demand strengthened, supporting a rise in
margins. US Gulf refinery margins for WTI crude gained more than $2/b versus the previous month’s levels
to average around $10.06/b during July, with refinery utilization rates reaching as high as 93.5%.
Product markets in Europe showed mixed performance during July, with the top and bottom of the barrel
weakening due to regional oversupply amid limited export opportunities, as well as higher feedstock values
m-o-m. The refinery margin for Brent crude in Northwest Europe (NWE) saw a marginal decline of $0.4/b
versus the previous month to average $7.6/b. Further losses in margins were avoided by the strong gains
exhibited by the middle of the barrel on the back of a healthy demand and increased exports.
Asian product markets exhibited improvements across all products with the exception of fuel oil. Strong
seasonal demand and reduced stocks levels supported margins. Refining margins for Oman increased by
$1.0/b to $9.3/b in July from a month earlier.
Refinery utilisation in the US averaged around 93.5% in July, corresponding to 17.26 mb/d or around
130 tb/d higher than a month earlier. On a y-o-y basis, this translated into an increase in throughput by
around 0.56 mb/d, primarily as a result of higher demand for gasoline and middle distillates in 2Q17 and
higher import requirements from Latin America, despite higher m-o-m feedstock prices. The traditional
slowdown in maintenance activities in 3Q16 was also evident in July’s refinery maintenance data. Refinery
turnaround volumes shrank to around 243 tb/d in July, some 380 tb/d lower than the previous month’s
recorded level, and are expected to decrease further in August 2017.
Preliminary estimates for Europe show that average refinery runs recorded 91.6% of capacity in July,
corresponding to a throughput of 10.6 mb/d, which was 150 tb/d higher than in the previous month. Since
April, runs have been increasing in Europe as refineries complete their maintenance programmes and rampup
operations. July saw a sharp decline in maintenance activities m-o-m from 805 tb/d in June 2017 to 340
tb/d in July. This despite some shut-in production towards the end of the month as Hellenic’s 100 tb/d Elefsis
refinery in Greece extended its maintenance programme, Portugal’s 220-tb/d Porto refinery reduced
production due to a workers’ strike and a fire shut in production at Shell’s 410 tb/d Pernis refinery.
In Asia, refinery utilization rates increased sharply, especially in Japan, following the end of the maintenance
season. Refinery runs in Singapore for June averaged around 89.5%, up 4 percentage points (pp) compared
with the previous month. Meanwhile, Japanese throughputs averaged 89.9% of capacity, 9.3 pp higher than
the previous month, as some refineries returned from maintenance. However, refinery runs in China declined
by 260 tb/d in July in line with seasonal patterns after reaching a record level of around 11.2 mb/d in June.
Throughput is significantly higher y-o-y, up by as much as 270 tb/d.
The grade 93 unleaded gasoline crack spread gained more than $2/b compared with the previous month’s
level to average $24.26/b in July. The main factor supporting healthier gasoline crack spreads in July is solid
demand for gasoline during the summer driving season supporting total gasoline consumption, which
reached around 9.7 mb/d in July, approximately 130 tb/d higher than that for June and more than 110 tb/d
higher than that for July 2016. Second, declining gasoline inventory levels, which fell for six consecutive
weeks starting from mid-June, led to nationwide stock levels of around 10 mb/d lower than those witnessed
in July 2016. Finally, outages in Mexico and Europe also contributed to the rise in gasoline crack spreads.
The US Gulf Coast gasoil crack averaged around $9.6/b for middle distillates, adding more than $2/b from
the previous month. The jet/kerosene crack spread increased most in July, adding close to $4/b to reach
13.7/b from the previous months’ level. Middle distillate demand, including that for jet/kerosene, stood at
around 6 mb/d in July, marginally lower than in the previous month and around 600 tb/d higher than in the
same month a year earlier. Exports of diesel oil to Europe were supported, backed by freight rates.
Additionally, middle distillate stocks continued to trend lower than levels experienced in July 2016.
At the bottom of the barrel, the US Gulf Coast high sulphur fuel oil crack gained around $2 to average
around minus $3/b in July. The fuel oil market continued to strengthen in July as stocks reached their lowest
point since 2015. Lower production volumes and higher export quantities were supported by healthy
Product markets in Europe exhibited mixed performance in July; while middle distillate crack spreads were
strengthening, those for gasoline and fuel oil were weakening.
The light distillate naphtha crack increased against Brent by $0.5/b to reach minus $1.22/b. The increase in
July mainly reflects an improvement in overall demand for the product, as naphtha crackers returned from
maintenance and export opportunities to the Asia Pacific region inched up above June levels.
The gasoline crack spread against Brent saw a drop of more than $4 from the previous month to average
around $17.4/b. The gasoline market continued weakening in July as regional oversupply outweighed
seasonal demand, increased feed stock costs m-o-m and closed arbitrage to the US, thus reducing export
The European gasoil crack spread against Brent crude at Rotterdam averaged around $12.3/b in July,
adding more than $1.7 versus the previous month’s level. The gasoil market withstood higher feedstock
costs m-o-m due to solid domestic demand, especially in Russia, and refinery outages, which rose towards
the end of the month. This kept the county’s exports low for several months.
At the bottom of the barrel, the NWE fuel oil crack lost almost $0.8 compared with the previous month to
average around minus $3.5/b in July. The decline is a result of slower domestic demand and easing export
volumes to Asia. Both of these factors added to a reported accumulation of Amsterdam-Rotterdam-Antwerp
(ARA) inventories to their highest levels since April. The crack is anticipated to continue to decline further as
a result of slower global demand.
The Asian market continued to be bullish in July, due to strengthening in all product crack spreads, with the
exception of the naphtha and fuel oil crack spreads, which declined marginally.
The Singapore naphtha crack declined compared with June levels, losing around $0.15/b over the month as
the rise in naphtha value didn’t match increased feedstock prices, despite positive factors such as firm
demand. Additional naphtha cracking capacities came out of maintenance and increased demand in Asia, for
example, the 495,000 mt/y Mizushima naphtha cracker in Japan returned from maintenance. A stronger
gasoline market, rising reforming spread and an increase in naphtha imports into China were also positive
factors for the naphtha crack spread in July.
The Asian gasoline crack spread against Oman crude in Singapore averaged $14.1/b in July, up by $0.9/b
compared with the previous month’s level. The gasoline market continued to strengthen during July,
supported by healthy demand and seasonal growth in Japanese demand. Healthy demand growth in India in
combination with limited supply reduced export levels over the month, further supporting the gasoline crack
At the middle of the barrel, the gasoil crack spread exhibited a solid rise, adding $1.9/b compared with June
to reach $13.7/b in July. The additional supply was outweighed by higher regional demand, with Vietnam
absorbing extra volumes in the market due to maintenance at the Dung Quat refinery. Hot weather in Japan
also propelled extra consumption in the power generation sector, with demand increasing to its highest level
since March, based on preliminary data.
At the bottom of the barrel, the Asian fuel oil crack spread in Singapore against Oman averaged about
minus $1.5/b in July, declining by $0.3/b from the previous month. The fuel oil market weakened as bunker
demand slowed, overall Asian demand eased from summer peak levels, Singapore fuel oil stocks increased
to a three-month high and increasing arbitrage volumes m-o-m came in from the West.