RPT-COLUMN-Cheap European gasoline set to hit U.S. market-Campbell

Thu Apr 19, 2012 12:42pm EDT

By Robert Campbell

NEW YORK, April 19 (Reuters) - U.S. gasoline traders are bracing for higher imports from Europe as a slump in European benchmark prices has re-opened the door to arbitrage shipments to the New York Harbor.

European cash gasoline prices spiked in late March as heavy regional refinery maintenance cut into supplies, sending cash Eurobob gasoline blendstock prices in the Amsterdam-Rotterdam-Antwerp hub above New York Harbor cash RBOB gasoline prices.

But since peaking on March 30, ARA Eurobob prices have tumbled against New York Harbor RBOB, falling to a nearly $4 per barrel discount as of Wednesday.

While modest compared to historical discounts, it has cracked open the arbitrage window at a time when U.S. gasoline stocks, relative to demand, are healthy.

The mounting European gasoline discount coincided with a rebound in stocks of gasoline held in independent storage at the ARA hub, which suggests European gasoline output has swung back into a modest surplus in recent weeks.

At the same time, chartering activity in so-called clean tankers for carrying refined products, has recovered, with at least six vessels chartered this week to carry cargoes from European ports to destinations in the Americas.

Imports from Canadian refineries also seem to be on the rise with a number of cargoes being offered to buyers in the New York Harbor in recent days.

Little wonder that cash gasoline prices in the United States are starting to come under sustained pressure.

Even if this European gasoline does not come directly to the New York Harbor and goes instead to, say, Mexico or Brazil, the pressure it will exert on gasoline prices in the Americas is being felt.

After all, any supplies Mexico buys from Europe simply offset cargoes they may have instead picked up from U.S. Gulf Coast refiners.

All of its is starting to feed into the futures market. RBOB gasoline futures have switched from leading the oil complex higher throughout the first quarter to being the worst performer since the start of April.

RBOB gasoline futures are down more than 5.6 percent since the start of the month, outpacing a 3.3 percent decline in Brent crude and a 1 percent fall in heating oil futures .

THE OIL MARKET STILL WORKS

None of this should really come as a surprise. Notwithstanding the histrionics of politicians of all stripes, this spring's spike in gasoline prices has triggered the exact sort of supply response needed to keep the market balanced.

If the flood of speculative money into RBOB futures has done anything, it has probably only sped up the supply response from the physical market, which ought to bring prices down.

And consider that this moderation in gasoline prices has come amid a reduction in regional refining capacity. Two Caribbean refineries and two Philadelphia-area plants are shut.

Add to that the Petroplus facilities in Europe that are at least temporarily closed. In other words, even with lower refining capacity in the Atlantic basin, the supply response looks to be coming quickly.

And this is happening without the full power of the U.S. Gulf Coast's complex refineries being brought to bear. Gulf Coast refineries ran at only 83.7 percent of capacity last week, according to the Energy Information Administration, likely due to seasonal maintenance.

With routine turnarounds wrapping up over the next few weeks, U.S. gasoline production should continue to climb. Add to that the expected start of the Motiva Port Arthur refinery expansion, which will gradually start to add even more gasoline to the mix as it ramps up output.

So even before we consider the impact of the brave, or perhaps foolhardy souls who are thinking about stepping into the refining business by restarting plants belonging to Petroplus in Europe and ConocoPhillips in the Philadelphia area, it looks like gasoline may well have hit its peak against crude for this year.

With demand in major consumption centers under pressure from increased fuel efficiency and the slow recovery in employment, it seems more likely that the risk for the summer is too many gasoline barrels chasing too few buyers than vice versa.

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