* Gasoline crack strong after Hess refinery closure news
* Market may have "over-adjusted" after diesel investments
* Emerging markets unable to meet own gasoline needs
By Claire Milhench
LONDON, Feb 4 A rush by Europe's refiners to
switch to making diesel may have gone too far too fast, meaning
the remaining gasoline-focused plants can prolong their lives by
supplying rapidly growing Latin American and African markets.
As gasoline consumption has declined in Europe and the
United States, refiners have been investing heavily in diesel
production and closing gasoline units.
But with gasoline margins rebounding to unseasonally strong
levels as more plants close, some analysts believe the market
"The past year has seen a massive rise in gasoline
cracks(refining margins)," said Johannes Benigni, founder of
research house JBC Energy. "We would not be surprised to see
another good year for gasoline-focused refiners."
Last year Europe's unloved "gasoline monsters" benefited
when the the Coryton refinery in England closed for good.
This year, plans by Hess to close its Port Reading,
New Jersey refinery in the United States in late February
provided another reprieve as the Atlantic basin suddenly looks
The Eurobob gasoline refining margin was at three-and-a-half
month highs on Feb. 4 at around $11.13 a barrel, while the U.S.
equivalent, known as the RBOB crack , was at over $30
Normally margins are lower in winter when there is less
"It's the seasonal low," one gasoline trader said. "If
demand is really strong now, there won't be a barrel left come
The announcement from Hess meant that U.S. benchmark RBOB
gasoline futures ended January up 6.13 percent, attracting more
European gasoline cargoes to the U.S. East Coast, and giving
European refineries an unexpectedly strong start to the year.
Soozhana Choi, an energy analyst at Deutsche Bank, noted
that the Port Reading closure will come just ahead of peak
spring maintenance, after which refiners typically ramp up
production to meet U.S. summer driving demand.
The closure adds to an already sizeable list of mothballed
refineries. Closures peaked in 2012 with 1.6 mln barrels per day
of capacity, Choi said, but the trend has continued into 2013.
Shell plans to shut most of the units at its Harburg
refinery in Germany at the end of March whilst
several Italian plants already stand idle.
This has strengthened the hand of the remaining
Germany is the biggest gasoline producer in Europe with some
470,000 barrels per day (bpd) in 2012, said Rob West, an energy
analyst at Bernstein. Britain is second with some 420,000 bpd.
EMERGING MARKET APPETITE
Although gasoline demand in mature Western economies is
declining, as consumers switch to diesel engines
that are seen as more economical, emerging markets such as
Nigeria, Egypt, India and Brazil are hungry for refined
Olivier Jakob, an analyst at Petromatrix, cited Mexico and
Venezuela, which is still experiencing production problems after
refinery explosions in 2012, as key buyers.
Some traders question the sustainability of the current
strength in gasoline prices, saying it is linked to fund
managers rotating into RBOB gasoline ahead of spring
But gasoline cracks were also strong in September and
October - bucking the usual seasonal trend - as refineries
prioritised diesel production to make up global shortfalls.
This points to underlying structural issues, JBC Energy
said. Recognising the decline in gasoline demand at home,
refiners have been boosting diesel output - European
hydrocracking capacity is up by 1 million bpd over the last
decade, Benigni said.
Investments like that made by Portugal's Galp are
typical of the trend. It has just finished an upgrade at its
Sines refinery, which will make Portugal a net diesel exporter
Meanwhile, gasoline demand in non-OECD economies excluding
China is set to grow by about 200,000 bpd per annum over the
next decade, according to JBC Energy.
This is partly because petrol is subsidised in many emerging
markets, so there is no price-correcting mechanism.
As a result, demand for octane enhancers - gasoline
components which produce higher quality grades of the fuel - is
increasing, Benigni said.
Emerging market refiners lack the ability to produce this
high octane gasoline themselves and must therefore import it.
Traders said the price of such components had been strong
One called MTBE, which is blended into gasoline to raise the
octane rating and reduce engine knocking, is a case in point.
This is currently expensive due to Venezuelan buying tenders
driven by refinery outages, and gasoline's high premium to
naphtha, which encourages blending.
"You need more octane when you blend naphtha into gasoline.
So the wider the gasoline/naphtha spread, the more you can pay
for MTBE," a trader said.
Shortages of blending components and restrictions on what
can be used are contributing to low U.S. East Coast gasoline
inventories, analysts say.
"As a result, we expect the seasonal swings in the gasoline
margin to remain very pronounced," Benigni said.