Traders Mercuria, Trafigura and SOCAR cut gasoline desks; new refining capacity slashes traditional profitability. U.S. refining boom weighs on global light products.
Trading houses are shrinking their gasoline desks in response to a slump in activity, particularly in Europe, where overseas competition and rising global supplies have limited opportunities to make money.
New and highly competitive refineries on the U.S. Gulf Coast, in Asia and the Middle East have increased global supplies of the motor fuel.
That has made the most active and lucrative trading routes, such as the transatlantic arbitrage between Europe and the U.S. East Coast, less and less profitable for traders.
"After a decent beginning to the year, the arbitrage to the U.S. has been mostly shut and opportunities are limited. The paper (futures) market has been in disarray so it has been a very difficult market overall," a European gasoline trader said.
A market source added: "No trading house has made money and margins are so poor with nothing on the horizon to suggest things will change."
The new refineries include the 400,000 barrels per day (bpd) Jubail refinery in Saudi Arabia and Reliance's 660,000 bpd Jamnagar refinery in India.
At the same time, U.S. Gulf Coast refineries benefiting from abundant and relatively cheap shale oil, such as Motiva's 600,000 bpd Port Arthur refinery and Exxonmobil's 560,500 bpd Baytown refinery have become major exporters of oil products all over the world.
While refiners have no choice but to trade their output regardless of how markets are moving, trading houses benefit from flexibility that allows them to grow and shrink trading desks in response to market conditions.
Geneva-based Mercuria has in recent months effectively shut down its European gasoline trading operations with the departures of three traders, Anthony Young, Dominic Jevons and Xavier Lespinasse, trading sources said.
Trafigura's Matthew Scothorn and James Hutchinson left the gasoline trading desk in Geneva earlier this year.
In Singapore, Anand Kumar, a gasoline trader for Azeri oil firm SOCAR, has recently left the company, less than six months after joining from Trafigura, sources said.
Mercuria and Trafigura declined to comment on personnel changes. SOCAR was not available for comment.
While global gasoline supplies have been on the rise with the new super refineries, consumers are still buying the fuel. Global demand reached around 15 million bpd in 2013, up from around 14.5 million bpd in 2012, according to International Energy Agency data.
Trafigura's gasoline tanks in Amsterdam, used for blending and storing different components to produce gasoline, have been empty and idle in recent months, trading source said. Trafigura declined to comment on the tanks' usage.
Another Trafigura gasoline trader, Max Tan, left the company's Singapore office in August.
Sources said it the pressure was not just on gasoline. Trading margins for other light distillate products, such as naphtha, could start to buckle under the weight of increased supplies.
While naphtha remains a key feedstock for petrochemical makers in Asia, rising U.S. liquefied petroleum gas (LPG) exports were hurting naphtha sellers, who witnessed a record volume of naphtha being replaced by LPG this year.
Mercuria Singapore's office also saw the departure of gasoline trader Nicolas Le-Tallec around June, followed by Simon DiFranco leaving its naphtha desk in Singapore in August. The reasons behind the moves were unclear.
For Europe, whose refiners produce an excess of gasoline but not enough diesel, gasoline exports have been crucial to sustain prices. But lower demand from the United States has significantly narrowed trade opportunities.
"Atlantic Basin gasoline demand has been very weak in 2014, notably U.S. demand growth has halved from 2013 levels," said David Fyfe, head of market research and analysis at Swiss-based trader Gunvor. Weak U.S. retail prices are expected to persist in 2015, prolonging the weakness, he said.
Similarly, the arbitrage to West Africa, up until last year largely dominated by Europe, is increasingly supplied by U.S. refiners.
By Ron Bousso and Seng Li Peng