In its latest Atlantic Basin Stockwatch Marketview report, ESAI said that although gasoline and diesel fundamentals indicate substantial improvement over 2009, there are still factors that will limit the pace of recovery.
In gasoline markets, surging crack spreads and strong preliminary figures draw a stark contrast to last year, with hopes of recovery pushing margins to over $15 per barrel over WTI. However, ESAI said financial market distortions might be exaggerating this view.
When compared against Louisiana Light Sweet, gasoline is more subdued, with spreads at less than half that amount, indicating a muted gasoline margin outlook and limits to refinery profits.
Despite consistent improvement, diesel is still in trouble, said ESAI Principal Andrew Reed.
He said: “That diesel demand is growing again is not in doubt, the weakness that lies ahead is in the production side.”
The US will run a 450,000 b/d gasoil surplus from May to October. The resulting inventory build in both the US and Europe, where stocks are already bearishly high, will be a big step backwards for the recovery of gasoil fundamentals.
In the near term, Atlantic Basin market margins will weaken under the weight of these elevated expectations. Through the remainder of the summer current exuberance will level off, leading to a slow and steady improvement in contrast to the roller coaster ride seen in today’s market.