The oil and gas market’s susceptibility to ripple effects in seemingly unrelated markets was on display this week as marginal declines in PADD 3 distillates exports to Central America due to European market conditions induced higher PADD 5 gasoline exports to Central America. How did this play out?
European refining margins continued to soften this week. Prices which had been high due to local refineries being insulated from transatlantic competition following disruptions in the US market due to the Atlantic hurricane season fell or flattened on the back of higher US production data. Since a relatively high degree of the US distillates exported to Central America is in multi-cargo marine movements, the more diesel marketers send over the water to Europe to meet this newly competitive market means less production to go to Central America, and therefore the fewer vessels that would be bringing gasoline as well. With this in mind, Navarik’s projected PADD 3 distillates volumes for EIA week 41 (the week ending Oct 13) show a sizeable drop, not only week-over-week but down from the same time last year. PADD 3 marketers would surely still be willing to send single-cargo gasoline movements but for a higher price, meaning that from the perspective of Central American importers it might be equally cost-effective to source supply from the US West Coast instead. Navarik’s projected volumes for this pacific-pacific trade are likewise up, approximately twice the level last week and higher than this time last year.
Should we expect this trend to continue? PADD 3 distillates stocks have been trending lower over the previous weeks, but should begin to flatten as production has more or less recovered post-Harvey. Moreover, average stock levels are roughly in line with regular seasonal trends. Therefore we don’t expect there to be many organic price swings in that market in the foreseeable future, but the same might not be said of PADD 5 gasoline. There, gasoline stocks are at the seasonal midpoint but trending upwards. West Coast production was unaffected by any storms and appear to be slightly higher than seasonal levels for purely organic market reasons. This should have the effect of keeping the regional gasoline price roughly competitive or even marginally more competitive compared to the static or rising distillates prices in the PADD 3 regional market.
The price shocks the Atlantic hurricane season induced in the Gulf of Mexico appear to becoming less and less perceptible. More and more, the normal course of market conditions should guide pricing for refined product exports out of the US. As always, watch the EIA report tomorrow for refinery utilization and production, and be sure to note differences in these for PADD 5 gasoline and PADD 3 distillates. But for the extra advantage on exports, consider turning to Navarik’s unique suite of data products that provide insights on marine exports while the movements are still on the water.
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