NEW DELHI - Refiners' profit from making gasoline has tripled in Asia this year from October lows amid tight supplies from China and hopes of record Indonesian demand, a trend that is likely to continue into summer driving season, traders and analysts said.
Rising margins also could drive up gasoline prices at the pump, adding to global inflationary risks.
The refining margin on producing a barrel of gasoline from Brent crude in Singapore climbed to a premium of $12 a barrel in February, up from a discount of $4.66 on Oct. 26.
"We expect margins to stay strong till the summer peak in August," said Mukesh Sahdev, head of downstream at Rystad Energy said.
In tandem with rising margins, Singapore gasoline prices have risen about 22% from 12-month lows in December to around $95 a barrel on a free on board basis, even as Brent prices have hovered around $80 a barrel.
"We are already seeing higher prices at the pump in some parts of Asia such as in Vietnam, and we expect price levels to be maintained over the next few months," said Kuanhui Lee, research analyst at Wood Mackenzie.
The uptrend in prices comes after a lull in markets due to high arrivals in the fourth quarter of 2022 from the region's key supplier China, after new export quotas were released in September.
Traders said there are several bullish factors driving the gains in the gasoline complex this quarter and the next.
"Chinese domestic demand, U.S. refinery outages at the end of last year and Ramadan starting from next month to name a few," a Singapore-based gasoline trader said.
It is likely that February gasoline exports from China may fall for a second straight month to their lowest in eight years as domestic consumption rebounds after the government lifted tough COVID-19 control measures.
Its February gasoline exports were estimated at between 285,000 tonnes and 360,000 tonnes, down from an estimated 840,000 tonnes for January, the lowest since February 2015.
Adding to the bullish sentiment, there is anticipation of record imports from Asia's top buyer Indonesia ahead of the festival of Ramadan, when people typically hit the road to join families for celebrations.
EUROPE, U.S. MARGINS
In northwestern Europe, gasoline margins have risen from around minus $2 a barrel in mid-December, lows last seen in 2020, to around $15 a barrel, despite relatively weak exports across the Atlantic as U.S. stockpiles are swelling.
While U.S. gasoline stocks have been building in the past weeks, they are about 15 million barrels lower than the same period in 2015-2019, meaning that the country will likely head into its summer driving season with contra-seasonally low stock levels, Dylan Sim, oil market analyst at FGE, said.
Meanwhile, several U.S. refineries have already started seasonal maintenance and European refineries will also carry out planned shutdowns in the months to come.
European supply will also be impacted by the loss of Russian light naphtha for gasoline blending due to the EU ban on Russian oil product, Sim added.
"All these factors should provide some strength to not just European gasoline cracks, but also U.S. and Asian cracks well into the second quarter," he said.
(Reporting by Mohi Narayan in New Delhi, additional reporting by Shadia Nasralla; Editing by Kim Coghill)