US Demand Gives European Refiners Rare Boost

Big slate of refinery maintenance in U.S., Canada; export rush bucks long-term trend.

A late-year rush for gasoline in the United States is creating unexpected demand for imported cargoes and giving struggling European refineries a welcome autumn boost.

An extensive slate of refinery maintenance on the U.S. Gulf Coast and in Canada has sapped gasoline availability, leading to a 70-percent increase in cargoes sailing west from Europe this month over levels in August - usually the time of peak demand.

"What we're seeing now is not normal," one trader said. "The strength in the United States is dramatic. There are a lot of barrels going over."

Traders said the U.S. shortage could get worse as demand in West Africa and the Middle East is also now attracting European cargoes.

The pull bucks a trend of lower U.S. gasoline imports from Europe, which fell almost 40 percent between 2008 and 2013, according to Eurostat data, as demand has fallen and as U.S. refineries have benefited from cheaper shale oil.

The longer-term drop in exports to the United States has hit European refiners' profits hard, leading to a string of closures, and causing a number of trading houses to cut their gasoline desks. But the current spike in exports shows occasional opportunities still emerge.

A string of gasoline-producing units at major Texas refineries are currently in maintenance, including fluid catalytic crackers (FCCs) at ExxonMobil's 300,000 barrel per day (bpd) Beaumont refinery and a crude distillation unit at Total's 225,000 bpd Port Arthur refinery.

The works have cut gasoline availability on the heavily-populated Atlantic Coast that is supplied from the Gulf via pipelines.

Further exacerbating the problem is a shutdown at Canada's 300,000 bpd Saint John refinery, a key supplier to the New York Harbor delivery point of the RBOB gasoline contract.

FEELING THE SQUEEZE

The shortness has contributed to a jump in the October RBOB gasoline contract to a near a 20 cent premium over the November contract, the highest in two years. [ID: nL2N0RQ16S]

So far this month, 24 cargoes have been booked to go west from Europe, a total of nearly 900,000 tonnes, or 70 percent more than the 14 cargoes booked in the same period during August, typically the peak time for U.S. summer driving demand.

"It's been a strange year ... the arbitrage (from Europe to the United States) was always shut, and now it seems quite open," another trader said.

On Friday, refineries in Europe were making almost $14 on every barrel of gasoline they produced, according to Reuters data, roughly double the level this time last year. Total refining margins are 60 percent above the average for 2014 so far.

The biggest problem for European refineries now is simply finding the barrels.

West Africa had its own rush for cargoes that saw nearly two dozen vessels booked this month, and Europe's own maintenance season includes FCC closures at Shell's 404,000 bpd Pernis refinery in Rotterdam, Valero's 270,000 bpd Pembroke refinery in Wales, and ExxonMobil's 240,000 bpd Port Jerome plant in France.

But despite the current rush, most traders still think it will be a brief respite for European refiners before they are hit with renewed competition from plants opening in the Middle East and Asia at the end of this year.

"There is definitely a pull, but we don't think this is the beginning of a four-week rally," said Robert Campbell, head of oil products research at Energy Aspects. "Into next year, things are going to be pretty horrifying." (Reporting By Libby George