The spread of gasoline between east and west reversed after a month and a half of Atlantic Basin barrels heading east, prompting Western markets to withdraw supplies. Meanwhile, gasoline cracks rose to multi-year highs on both sides of the Atlantic. US pump prices reached highs last seen in 2022 (EIA) while inventories remained below year-ago levels in most Atlantic Basin markets. This confluence of factors, along with other restrictions associated with the Strait of Hormuz, is causing supply disruptions ahead of the high-demand summer driving season in the United States.
Europe is moving from Asia to the United States
Gasoline/mixing component exports from the Atlantic Basin to the Pacific Basin rose throughout March and April, marking their highest consecutive levels in the data set (10 years). Asian refinery operating cuts due to the unavailability of crude in the Middle East after the closure of the Strait of Hormuz and export restrictions from China and South Korea, which led to the withdrawal of barrels from Europe, PADD 3 and even Nigeria to the east.
Strong rebalancing between basins, coupled with rising crude oil arrivals to Asia from alternative suppliers, led to a closure of the West-East gasoline zone in early April, and volumes fell, although still at seasonal record levels. Since then, the focus has shifted to the Atlantic Basin, where the balance has become tighter.
Northwest European gasoline/mixing component exports to PADD 1 began to rebuild in April following a seasonal pattern, but flow so far in Q2 has been consistently lower by more than 30% year-on-year and remains stuck at the bottom of the seasonal range.
ARA inventories remain well below last year’s levels (Insights Global via Argus) due to high export levels since the beginning of the Hormuz unrest. While Europe remains structurally long-term and able to continue delivering supplies in both directions, competition is pushing up prices, and the United States faces another problem: mixing components. The deficiency is concentrated in high-octane and alkylate blends.
US refineries are working hard, but are still limited in capacity
US refineries are operating strongly in the summer, with utilization above year-ago levels across PADDs 1 and 3, with PADD 3 near maximum (EIA). But supply response has limits, the most important of which is the availability of high-octane mixing components.
India’s alkylate exports to PADD 1 fell 78% year-on-year in April, to nearly 17,000 barrels per day, after India directed refiners to increase availability of propane and butane to maximize domestic LPG demand, reducing feedstock to alkylate units. India has historically been a major supplier of alkylate to the US Atlantic Coast, a key component of summer grade gasoline. The disruption is reflected on the other side of the country, where Asian blending ingredient exports (mainly alkylate) to PADD 5 fell to around 14,000 barrels per day in April, down 80% month-on-month and 65% year-on-year.
The US is currently seeing the biggest decline in RBOB since the post-coronavirus transportation recovery, discouraging component inventory building, which will likely keep prices high throughout the driving season regardless of any possibility of Hormuz reopening.
Despite some demand-side intervention measures, such as a national waiver on environmental protections earlier this year, and recent talks about suspending the federal gas tax, the Atlantic Basin is entering summer with its tightest balance in years.
Source: Vortex
