US gasoline imports fell to 644,000 b/d for the week ending September 10th, according to the US Energy Information Administration. Gasoline supplied to wholesalers fell by 2.6% to the lowest level since March.
Imported gasoline mostly comes from Europe, but slack demand has dimmed the arbitrage available to traders and brightened the outlook for US refiners like Valero Energy Corp. (NYSE:VLO), Tesoro Corp. (NYSE:TSO), Frontier Oil Corp. (NYSE:FTO), and Western Refining Inc. (NYSE:WNR). According to a report from Bloomberg News NYMEX gasoline futures closed at $1.96/gallon yesterday, about $0.0171 less than the price in Europe.
The arbitrage margin fell to just $0.039 last week, the lowest it’s been in a year. In July the margin was $0.1809 and in August the margin was $0.1025. The number of tankers chartered with gasoline from Europe to the US was down to 21 in August from 24 in July and 30 in August.
US gasoline stocks fell slightly last week to 224.5 million barrels, from 225.3 million barrels on September 3rd, but stocks remain 14% above the high end of their five-year average range. Demand from drivers hit a 23-month low earlier this month.
The lower arbitrage available for European gasoline has created an opportunity for US refiners, who now enjoy a profit margin (crack spread) of $6.41 on a barrel of WTI refined into gasoline. In late August the margin was just $4.15.
Refiners are also getting the benefit of a ban on exports of US crude, which has been in place in one form or another since 1977. US crude production, which now trades at a discount to Brent crude, is cheaper than imported crude and thus more economical for US refiners.
US refiners are running at 87.6% of capacity as refiners begin their turnarounds for production of winter fuel. Net production of finished gasoline at US refineries fell to 9.175 million barrels last week, 320,000 barrels less than the week before. Lower gasoline production over the next few weeks should have little impact on pump prices.
For some reason, shares in refiners are all down today, from about 0.2% for Western up to about 2% for Frontier. The drop is almost certainly due to the drop in crude prices today to below $75/barrel. But that’s good news for refiners, provided demand at the pump doesn’t fall off too much. Combined with lower import levels from Europe, refiner stocks should be getting treated a little better today.
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