Americas: US Gasoline Demand Feels Strong Tailwind

North America and the UK are leading the recovery from the Covid-19 pandemic in the Atlantic Basin. Downstream margins in the US are strengthening as demand, especially for gasoline, creeps higher. Meanwhile, refiners are keeping a tight grip on the throttle ahead of the summer, and longer term the outlook for any additional downstream capacity in the hemisphere grows ever bleaker. Downstream and midstream players in the Americas are already adapting to a lower-carbon economy environment, with the Covid-19 pandemic acting as a catalyst. Gasoline’s performance in particular is helping to fuel the recovery. Crack spreads for gasoline in a complex Gulf Coast facility against an incremental barrel of Mars crude breached $21 early in April. An aggressive vaccine rollout in the US, the largest gasoline consumer in the world, alongside a massive stimulus package have helped goose demand higher. Meanwhile, the lingering effects of Winter Storm Uri combined with seasonal maintenance -- albeit lighter than usual -- have helped keep a lid on throughputs (OMI Mar.19'21). However, refiners are looking to increase activity as the summer driving season, widely expected to be strong, gets under way (OMI Mar.19'21). Utilization hit 84% in early April, its highest weekly figure since late March last year. But there are signs that they should proceed with caution: While Nymex gasoline futures are flirting with $2 per gallon, time spreads are relatively narrow. Front-month contracts trade at a slight discount to June barrels. Starting in June, the structure flips to backwardation; however, June gasoline trades just less than a penny above September (related). Even as downstream activity in the US picks up, the country is seeing a surge in gasoline imports that started in response to Uri (related). Tanker trackers see March imports at their highest in 19 months, and fixtures as of mid-April suggest an even higher volume headed to the US -- roughly 760,000 barrels per day is set to arrive this month. The opposite holds true for exports, with April looking like the weakest month since last May. Diesel, too, is seeing a dip in exports. However, exports will likely pick up as refiners open the throttle. An emphasis on increasing exports, particularly to Latin America and Asia, is inevitable given demand trends in North America, and both refiners and pipeline firms are investing heavily in dock and terminal space. The export market likely won't be big enough to breathe life into mothballed refineries that were hoping for a restart, however. Already, the US has shed considerable downstream capacity. The outlook for restarts of Caribbean refineries is getting dimmer as well. Limetree Bay -- formerly the Hovensa refinery -- is operating below capacity following a restart delayed by over a year (OMI Feb.16'21). Experts have expressed considerable skepticism that other Caribbean refineries in Aruba, Curacao and Trinidad and Tobago with a combined capacity of over 700,000 b/d will ever restart, likening competition to feed dwindling demand at home to an ongoing game of musical chairs in which new players keep trying to join even as the number of seats drops. Remaining US Gulf Coast refiners will be able to snatch incremental market share in Latin America, the thinking goes, especially as Caribbean refiners have essentially no access to their main advantage -- Venezuelan crude. PRICES Monthly Prices Recent-Week Prices Mar 8- Mar 15- Mar 22- Mar 29- Apr 5- Nov Dec Jan Feb Mar Mar 12 Mar 19 Mar 26 Apr 2 Apr 9 US GULF COAST (¢/gallon) Prem. Unleaded Gasoline 118.76 137.30 155.96 176.97 202.62 212.28 204.13 196.04 201.27 201.42 Reg. Unleaded Gasoline 112.58 129.51 149.72 168.39 194.20 201.88 196.48 187.79 193.39 192.07 Regular RBOB Gasoline 111.21 128.12 148.77 166.53 195.29 203.08 198.88 188.79 194.02 193.17 Jet Kerosene 113.01 132.12 141.80 159.83 165.82 172.83 166.95 159.55 159.57 159.88 0.2% Heating/Gasoil 109.98 129.82 138.09 153.06 164.05 170.23 165.55 156.85 158.13 150.93 <15ppm Diesel 120.90 140.01 152.06 174.13 182.13 190.28 184.05 174.79 175.37 174.98 Fuel Oil ($/bbl) 0.5% Sulfur (VLSFO) 47.82 55.91 60.91 68.98 73.34 76.01 74.08 70.87 70.30 69.73 1.0% Sulfur 47.55 52.72 57.58 64.47 65.75 65.28 67.26 63.78 65.64 63.06 3.0% Sulfur 39.82 43.79 48.60 54.57 55.30 54.87 56.38 53.88 56.39 52.86 NEW YORK HARBOR (¢/gallon) Prem. Unleaded Gasoline 126.80 143.86 163.21 185.26 200.03 209.53 200.53 192.44 197.20 201.72 Reg. Unleaded Gasoline 118.75 135.62 156.04 175.88 198.38 207.83 203.78 190.59 195.64 194.27 Regular RBOB Gasoline 118.26 133.70 153.93 174.32 190.14 198.36 192.08 183.09 187.70 182.27 Jet Kerosene 118.42 137.99 146.70 163.87 169.24 177.33 170.80 161.52 164.97 164.13 0.2% Heating/Gasoil 116.50 136.73 147.52 165.74 170.20 177.69 170.69 163.28 164.66 164.83 <15ppm Diesel † 124.10 144.37 157.45 178.77 185.26 192.63 187.27 178.52 179.72 179.99 Fuel Oil ($/bbl) 0.5% Sulfur (VLSFO) 51.93 58.94 64.48 72.15 75.90 78.53 76.91 73.24 73.18 71.17 1.0% Sulfur 47.19 52.14 56.66 64.16 65.65 64.31 67.00 65.09 66.66 63.75 2.2% Sulfur 44.37 48.61 53.25 60.80 62.28 60.44 62.45 63.24 64.64 61.35 FUTURES Nymex Heating Oil (¢/gallon) Front-Month Contract 124.80 144.78 157.83 178.51 185.60 193.20 187.88 179.23 180.05 179.84 4 Weeks Ahead* +0.88 +0.40 +0.10 -0.93 -0.09 -0.12 +0.01 +0.13 +0.78 +0.20 8 Weeks Ahead* +1.83 +0.63 -0.11 -1.64 -0.18 -0.31 -0.08 +0.30 +0.41 +0.46 12 Weeks Ahead* +2.66 +0.69 -0.20 -2.03 -0.18 -0.47 -0.11 +0.57 +0.74 +0.77 Nymex RBOB Gasoline (¢/gallon) Front-Month Contract 116.66 132.83 153.07 173.91 200.74 209.33 202.80 194.67 199.00 196.01 4 Weeks Ahead* -0.56 +0.14 -0.18 +9.80 -0.28 -0.69 -0.26 -0.02 +0.33 -0.16 8 Weeks Ahead* +0.31 +1.39 +10.16 +9.70 -1.67 -2.68 -1.65 -0.88 -0.65 -1.39 12 Weeks Ahead* +2.02 +13.53 +10.72 +8.79 -3.85 -5.40 -3.82 -2.51 -2.57 -3.53 CBOT Ethanol Futures (¢/gallon) Front-Month Contract 142.74 134.89 156.26 168.63 180.21 179.06 179.94 181.66 189.50 189.62 *Differential versus current front-month contract. Time periods identified are four, eight and 12 weeks ahead of the front-month