Vaccine too late to save NWE winter gasoline market

The gasoline market in northwest Europe is likely to remain oversupplied well into 2021, even with the roll-out of Covid-19 vaccines.

Crude and oil product prices have been buoyed by the news that two vaccines have shown over 90pc effectiveness in phase-3 clinical trials. Even though testing has not finished and regulators have yet to grant approval, front-month Ice Brent crude futures have surged by around 10pc since 6 November, the last trading day before US firm Pfizer and its German partner Biontech announced their test results. Crude's gains have outpaced gasoline, with benchmark Eurobob oxy's notional refining margin falling to below $1/bl this week, from over $2/bl at the start of the month. Gasoline margins are now at their lowest since turning negative in August, and have fallen below diesel and jet fuel in northwest Europe for the first time in three months.

Any demand boost resulting from the vaccines could be several months away. Vaccine roll-outs will take time, and will initially be limited to the most vulnerable. Restrictions reimposed this autumn to tackle resurgent infection rates across Europe are not going to be reversed early. The IEA said in its latest monthly Oil Market Report (OMR) that it does not anticipate vaccines having a significant impact on oil demand in the first half of next year. And market participants have told Argus that news of the vaccine tests has not altered their short-term outlooks on gasoline demand. They expect demand in Europe's major gasoline-consuming countries such as the UK and Germany to be 15-20pc lower in November and December than during the same period last year, while countries like France and Italy could see year-on-year declines of 25-50pc.

It is not just lacklustre regional demand weighing on the gasoline market in northwest Europe. The US — the world's largest gasoline consumer and a major importer of European gasoline — has also stepped up efforts to halt the spread of coronavirus this winter, including new restrictions imposed in Washington state and Michigan this week. Implied gasoline demand in the US fell to a four-month low of under 8.3mn b/d in the week to 13 November, according to the latest EIA data released today. The total is down by 6pc on the previous week and 10pc below the same time last year.

Storage options Gasoline suppliers in northwest Europe are increasingly likely to turn to storage as deteriorating demand helps shift the market into contango, where forward prices are higher than prompt values. January Eurobob oxy swaps reached a $5-6/t premium to December swaps this week.

But inventories are already high. Independently-held gasoline stocks in the Amsterdam-Rotterdam-Antwerp (ARA) trading hub are up nearly 60pc on a year ago, according to consultancy Insights Global. And gasoline inventories in the EU-15 plus Norway reached a five-month high in October, according to Euroilstock.

Contango in the winter months is fairly normal, given the seasonal lull in demand and the transition to higher-premium summer gasoline grades from around April. But this year, there is likely to be a significant amount of summer-grade gasoline already in tank from last year, compounding a lack of interest in winter-grade cargoes for export or blending.

The end of the autumn refinery maintenance season could exacerbate the region's supply glut. ExxonMobil confirmed last week that it has restarted its 310,000 b/d Antwerp refinery after just over a month of maintenance. Trading firm Gunvor is in the process of restarting its 80,000 b/d Europoort refinery in Rotterdam, which has been offline for around eight months. Units at Spanish company Repsol's 240,0000 b/d Bilbao refinery and UK-Chinese venture Petroineos' 210,000 b/d Grangemouth refinery in Scotland have also come back online.

By George King Cassell

Eurobob oxy gasoline refining margin to Ice Brent

Gasoline in independent storage ARA

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