US gasoline prices could fall as imports increase from Europe

13 October 2010 00:46  [Source: ICIS news]

HOUSTON (ICIS)--Gasoline prices could drop as much as 15 cents/gal moving into November, starting in the US northeast and continuing to the US Gulf, a trader said Tuesday.

As refineries in Europe come out of turnarounds and repair processing upsets, the arbitrage for gasoline shipments from Europe to New York Harbour has been inching open and traders have taken notice. Market sources said that late last week, buyers were scarce and only sellers were seen in the trading window for late October. 

Prices in the cash market for New York Harbour regular unleaded gasoline were about $2.17-2.18/gal on Tuesday.

European refinery runs for the year were down 1.4m bbl/day from 2008 levels. In September, refiners in northwest Europe were performing plant maintenance, which caused profits from processing crude oil to fuels to drop to their lowest levels in eight years. Margins during this time fell to $2.12/bbl for the quarter ending 2 September compared to $3.84/bbl the previous quarter. That compared with $1.28/bbl in 2002.

With refiners coming back online, however, gasoline exports from Europe were expected to resume. In the Energy Information Administration's (EIA) inventory data release for the week ended 1 October, gasoline imports to New York Harbour were at 530,000 bbl/day compared with more than 900,000 bbl/day a year ago. 

Despite a nationwide excess supply of gasoline, there has been a perceived tightness in the northeast as a result of lighter-than-usual imports from Europe for this time of year, the trader said. Usually, excess gasoline production in Europe is shipped to New York Harbour while US ships carry diesel to Europe due to respective automobile fuel demand.

New York Harbour sets the market clearing price for homeless barrels [of refined product],” said Anne Keller, president of Midstream Energy Group.

Keller said traders in the US Gulf usually buy product and send it via the Colonial Pipeline to the northern markets to alleviate supply and production from Gulf coast refiners. But traders in the northeast will often instead purchase imported product as it ships into New York Harbour.

If this occurs, eventually US Gulf fuel prices would be pressured as a result of lack of demand from markets that US Gulf refined products usually supply via the Colonial Pipeline.

A potential roadblock to an influx of imports to New York Harbour was the strike at the Fos-Lavera oil terminal in southern France that has pinched crude supplies to an extent that Total and neighbouring refineries have cut crude runs.

PFGBest senior market analyst Phil Flynn said when the French strike ends, traders could see the market collapse unless an export window opens for the US to rid excess product.

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By: Sheena Martin
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