* More refiners back in action after maintenance
* Demand still falling sharply
* Distillates fare better due to lower stocks
LONDON, March 21 European oil refining margins
are likely to stay depressed this year after retreating in the
last month due to an increase in excess capacity, Goldman Sachs
said in a note.
The bank said that gasoline cracks declined by $12.44 per
barrel, or 67 percent, from February highs by March 13, but have
rebounded $3.67 per barrel since then.
According to Goldman, around 530,000 barrels per day (bpd)
of refining capacity has been shut down on average each year
over the past three years, but that it expects a small cut in
refining capacity in 2013.
"Consequently, while European refining capacity has
stabilized since the beginning of the year, demand continues to
fall sharply, and as a result we expect that the wedge between
European refining capacity and European product demand will open
Further darkenning the outlook the report said that the
usual gasoline exports to the United States were unlikely to
support prices for long.
"Higher exports are unlikely to sustainably help European
refiners as they suffer from much higher costs compared to their
U.S. peers," it said.
European gasoline prices remain lower than the U.S.
benchmark RBOB price, leaving arbitrage profitable even after a
spike in U.S. ethanol blending credits, or RINs (Renewable
U.S. refiners and blenders are required to blend ethanol
into gasoline. But an increase in required blending quotas and a
drop in gasoline demand have led to a spectacular rally in the
value of the RINs since the end of 2012.
From a marginal cost of around 3 cents per gallon at the end
of last year, RINs prices rose to more than $1 a gallon earlier
this month, becoming a major drag on RBOB prices.
Refiners will need to cut runs in order to prevent a glut in
"European refiners will need to reduce their output in order
to prevent product inventories from building, which would likely
create continued downward pressure on European product margins
over the medium term," the bank said.
Goldman added that margins for distillates would be more
robust than those for gasoline, in part because of lower
"We believe this has been driven not only by distillate
inventory levels being even lower than those of motor gasoline
currently, but also by the expectation that this relative
tightness will persist going forward," the note said.
It said that distillate demand has declined more slowly than
other products, down only 2.3 percent year-on-year in 2012,
compared to a 6.9 percent decline in gasoline demand, and that
the trend has contunued in January and February this year.