Weak summer US gasoline demand puts brakes on chem margins

22 May 2009 17:50  [Source: ICIS news]

US summer driving season beginsHOUSTON (ICIS news)--More US drivers are expected to be on the road for the Memorial Day holiday weekend, but the short-term spike in gasoline demand will not last throughout the traditional summer driving season, sources said on Friday.

For the chemical sector, stabilised gasoline prices will further tighten margins for chemical producers hit by dismal demand and weak raw material prices.

US automobile consumer organization AAA predicted an increase in travellers during the 23-24-25 May holiday weekend with retail gasoline prices considerably lower than last year.

The US national retail gasoline average was $2.362/gal (€1.701/gal) on 22 May, according to the AAA, which was $1.469/gal cheaper than last year's average of $3.831/gal on the same day.

AAA expects 32.4m Americans to travel during the holiday weekend, which would be a 1.5% increase from last year but lower than the 35.3m travellers who ventured more than 50 miles from home in 2007.

With gas prices so low and the expenses of flying so high, the majority of holiday travellers will be driving, said Sarah Schimmer, AAA Texas spokeswoman.

With prices below $3/gal at US gas stations, Schimmer said the estimated total US gas bill for the three-day Memorial Day weekend will be $3.2bn, a significant drop from the actual tally in 2008 of $6bn.

Low gasoline prices will continue throughout the summer driving season, which ends in September, the Energy Information Administration (EIA) said in a report earlier in May.

Regular gasoline retail prices are projected to average $2.21/gal throughout the summer, down nearly $1.60/gal from last year, according to the EIA.

The EIA anticipates the annual average regular gasoline to be $2.12/gal for all of 2009 (compared with $3.26/gal in 2008), and increasing to a $2.30/gal average in 2010.

Indicators on the wholesale and refinery end of the gasoline production process underscore the idea that prices will remain steady.

NYMEX futures prices for reformulated blendstock for oxygenate blending (RBOB) currently sit backwardated, with traders anticipating more supply coming up in the peak summer driving months.

“Strong supply availability from refiners now running at low utilizations in both Europe and the US is likely to moderate gasoline price increases this summer,” the EIA said.

Moreover, the EIA said US motor gasoline demand has averaged 8.915m bbl/day in 2009, a drop of 73,000 bbl/day from a year earlier.

A consultant at the Global Refining Summit in the Netherlands said that despite signs of economic recovery, US gasoline demand in 2009 would not return to peak levels seen in 2007, but would instead be off by 7% and falling.

Aromatic solvent distributors said the upcoming holiday weekend will tell a lot about aromatic solvent and gasoline demand this summer.

"We didn’t see as much of a run-up in demand in the second quarter as we generally do, even with prices that are down from a year ago," a distributor said. "If we don’t see a surge in gasoline use this weekend, it’s probably going to mean a long summer for aromatics sellers."

In the US Gulf, aromatics values were at near parity with retail gasoline at the traditional start of the summer driving season as demand from gasoline blenders partly offset fundamental weakness on the chemical side.

US mixed xylene (MX) spot prices held in the $2.30s/gal alongside spot benzene as crude oil moved up but domestic and export demand stalled, according to data from global chemical market intelligence service ICIS pricing

US toluene was equally steady at a 40-50 cent/gal premium to front-month RBOB values.

Market sources cautioned of weak demand beyond the gasoline pool and said current spot values indicated that chemical-side buyers were anticipating further supply builds from production increases and more blending component imports.

Additional reporting by Ryan Hickman, Steven McGinn, Landon Feller, Ben Lefebvre and Gene Lockard

($1 = €0.72)

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By: Steven McGinn
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