The region’s record inventories have grown so large that at least five tankers bringing cargoes to New York in January were forced head elsewhere while en route. Ship charters show European plants directing more of what they produce to Africa. The stockpile buildup has depressed both trans-Atlantic shipping rates and refiners’ profits from making the fuel.
The increase in inventories “will keep demand for voyages into the East Coast low as the market awaits the impact of spring maintenance” at refineries, said George Los, senior tanker markets analyst at Charles R. Weber Co. in Greenwich, Connecticut.
The stockpile buildup has been caused by the lowest U.S. gasoline demand since 2012 at a time when refiners are processing more than normal. The U.S. is a common destination for Europe’s excess gasoline, with companies including BP Plc and Repsol SA among those booking seven or eight tankers a week in the spot market for the voyage. Current East Coast inventories would be enough to supply the region for almost a month, an all-time high, according to data compiled by Bloomberg.
“The concern is the PADD1 market,” Gary Simmons, senior vice president at Valero Energy Corp., said this week, referring to the East Coast. High inventories on the Gulf Coast are less problematic because improving weather will allow exports to clear supplies from that region, he said.
Gasoline inventories on the U.S. East Coast rose to more than 73 million barrels, exceeding the previous high set last July, Energy Information Administration data showed Wednesday. National stockpiles also increased. The four-week average for demand, which has declined since mid-August, dipped to about 8.2 million barrels a day, the lowest since February 2012.
The build-up has caused vessel rates on the cross-Atlantic route to fall about 25 percent since the start of the year. A Bloomberg survey this week showed 15 charters booked or anticipated in the next 2 weeks, the lowest in 2 months. Two of the tankers that diverted from New York last month, sailed south to the Caribbean, often used as a storage location for onward shipments to Latin American markets.
Gasoline cracks, the premium the fuel fetches relative to crude, traded at $12 a barrel on Nymex on Thursday. That compares with an average of about $19 a barrel at this time of year between 2012 and 2016.
While flows to the U.S. have subsided, European companies are increasingly looking to West Africa as a destination for their gasoline. A total of 50 tankers were booked to take fuels to the region from Europe in January, compared with 32 in December and 25 the previous month, lists of charters compiled by Bloomberg show. The cargoes are subject to cancellations.
Refinery maintenance season in the U.S., which will occur in the coming months, will likely reduce gasoline inventory levels because supplies will decline as the work gets under way.
“That should pull some more gasoline out of Europe again,” said Jonathan Leitch, research director for refining and oil product markets at Wood Mackenzie Ltd. in London.