Viewpoint: Gasoline to surprise again in 2022 on upside

  • Market: Oil products
  • 04/01/22

European road fuel demand should bounce back further in 2022 as the effects of the pandemic on mobility recede, and permanent structural shifts in production and tight inventories going into the spring could all combine to produce a bumper year.

Gasoline outperformed in 2021 as road fuel demand returned or exceeded pre-Covid levels earlier than expected, and it benefited from the shift to private vehicles over public transport when cases flared up again. Pump prices reached record highs in Europe and the US in the autumn and, in a boon for producers, so did cracks. Eurobob oxy gasoline's notional premium to North Sea Dated averaged $9.45/bl in 2021, the widest since 2017.

For the first time ever, gasoline outperformed other transport fuels — averaging a $1.07/bl premium to diesel and $2.91/bl above jet fuel in 2021.

A prompt supply crunch caused by a lack of available barges in the Amsterdam-Rotterdam-Antwerp (ARA) trading hub explains the sharp surge in gasoline prices and cracks in autumn 2021, and is emblematic of issues caused by global supply chain constrictions and high energy costs. Barge freight rates in ARA rose more than four-fold in the year, and the cost of running a refinery increased exponentially after natural gas prices hit record highs.

That means supply will remain constrained into this year, in addition to near 900,000 b/d of crude distillation capacity permanently closed or earmarked for closure since the start of the pandemic.

At the same time demand should continue its solid recovery. Gasoline consumption exceeded pre-Covid levels in many European countries in summer 2021, with international travel still restricted. "When Covid cases rose sharply again, gasoline demand benefited from the preference of personal vehicles over public transport.

Firm export demand was a significant price driver, and will play a major role again in 2022. Europe's position as primary supplier of gasoline to west Africa is under no threat, and a record 16.7mn t went to the region between January and November 2021, up by 36pc from the first 11 months of 2019. Around 16mn t of European gasoline went to the US in the same time, up by 13pc from 2019.

US supply should remain tight into 2022 for similar reasons as Europe. Around 1mn b/d of US refining capacity has been closed due to Covid-19, while gasoline demand returned to pre-Covid levels as early as May and set new records through the summer including breaching 10mn b/d for the first time ever.

Demand in the US, the world's largest gasoline market, shows no sign of slowing, and that has helped trim inventories to multi-year lows. Most recent EIA stock data show a deficit of 9pc on two years ago on the US Atlantic coast— where most European exports end up — having fallen to seven-year lows in November.

Lower overall output leaves the US vulnerable to supply shocks, such as last year's arctic storm or another hurricane in the US Gulf coast.

Supply is also relatively tight in Asia-Pacific, and although eastbound flows will remain on the periphery for European suppliers, a shortfall of supply from China means more demand for European gasoline from its regular markets. The pandemic slowed the rapid capacity expansion of the last decade in the Mideast Gulf and China, with the latter expected to keep exports tight into 2022 because of lower domestic runs and sharply reduced quotas.

Further ahead, the energy transition will play a major role in trimming traditional road fuel demand. For the first time, new battery or hybrid-battery cars outsold fossil fuel engines in 2021, but "peak road fuel demand" is some way off. The roll out of E10 gasoline in the UK will probably be repeated in Ireland in 2022, which may tip the balance in favour of non-oxy Eurobob as the fuel of choice for blending more bioethanol.

Eurobob oxy gasoline's premium to North Sea Dated

European product cracks to North Sea Dated

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