Less than three months ago, gasoline was viewed as the bright spot for refiners in a glutted global oil market amid signs that demand was soaring in the U.S. and China. Times have changed.
At least five sea tankers hauling gasoline to New York from around the world were turned away over the past few weeks, according to traders and ship-tracking data compiled by Bloomberg. So full are land depots that the International Energy Agency said July 13 some vessels are storing cargoes at sea. Stockpiles are at or near all-time seasonal highs, and U.S. gasoline pump prices snapped their longest losing streak in 10 months Thursday, gaining for the first time in 34 days.
The glut has multiple causes, including lower-than-expected U.S. demand and a flood of exports from China. Perhaps the biggest is that refineries went flat-out to make gasoline earlier this year when profits from making diesel tanked, according to Wood Mackenzie Ltd., an Edinburgh-based consultant that counts refineries and many of the world’s largest oil companies as clients.
“The natural thing to do was switch from diesel to gasoline,” said Jonathan Leitch, London-based research director for refining and oil product markets at the energy research firm. “In a way, it’s killing the goose that laid the golden egg because they’ve taken all the tightness out of the gasoline market.”
The crack spread, a rough measure of the profit from turning a barrel of oil into fuel, slumped to $8.46 a barrel in the first quarter for diesel -- called gasoil in Europe -- from $15.28 a year earlier. Over the same period, gasoline’s return rose to $11.94 from $8.66. Refiners worldwide responded by boosting gasoline processing by as much as 3 percentage points more than normal in the first quarter, Wood Mackenzie estimates.
They ended up making more gasoline than the world needed. Stockpiles hit record seasonal levels at hubs in Europe and New York Harbor, according to independent research firm PJK International and U.S. Energy Information Administration data. Light distillate inventories in Singapore, which include gasoline, are at the highest for the time of year since at least 1995, according to official data.
Also, demand is not as robust as previously thought, making it harder to reduce inventories. In June, the EIA reported April gasoline demand was 286,000 barrels a day less than preliminary weekly figures showed. The agency this week cut its forecast for 2016 consumption by 0.4 percent from the previous month.
China has also played a role. Weather that damaged roads and pipelines in the country dampened domestic consumption this summer and spurred exports, JPMorgan Chase & Co.’s Ying Wang wrote in a research note.
Gasoline exports from China typically begin to fall in March, but this year the shipments rose every month from February to May, according to Chinese customs data compiled by Bloomberg. May exports were more than double the five-year average.
The Chinese teapots -- small, private refineries recently allowed to process freely -- also drove exports higher, said Matt Smith, director of commodity research for ClipperData LLC, which tracks crude and products globally.
The global glut has pushed gasoline’s crack spread in Europe to the lowest for the time of year since 2010. It gained 53 cents to $7.82 as of 7:06 p.m. in London, according to PVM Oil Associates data. The gasoil crack was at $8.47 at 7:07 p.m., and touched the lowest for the time of year since 2009.
As a result, refiners have begun to reduce processing. European rates fell 650,000 barrels a day in May from a year earlier and could drop further, said Kristine Petrosyan, an oil market analyst for refining at the IEA. U.S. refiners, which normally increase rates in July, have processed less crude for the past two weeks, EIA data show.
The teapots cut runs for a fifth week as of July 7, according to information published on Oilchem.net, an industry website.
“It’s oversupplied in Asia, U.S. and Europe, all three main regional markets,” Wood Mackenzie’s Leitch said. “We believe that the overhang of gasoline will likely last throughout the driving season.”
U.S. motorists are benefiting from the processors’ excesses. Average national prices of regular gasoline at the pump stood at $2.22 a gallon Thursday after dropping 6.8 percent in 33 days of declines, according to AAA, the motor club.
“Our expectation would be that prices are poised to move lower,” Avery Ash, a AAA spokesman, said Thursday.
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