Gasoline Profit's 5-Month High Means U.S. Imports to Rise: Energy Markets

ImageJanuary 7, 2011

Gasoline shipments to the U.S. from Europe are poised to rebound in January after profit from the trade jumped to the highest level in almost five months.

The motor fuel was 14.5 cents a gallon more expensive in the U.S. than Europe on Dec. 31, the most since Aug. 5, based on futures for delivery to New York harbor and benchmark 95-octane grade in the Amsterdam-Rotterdam-Antwerp region. It was 1.44 cents cheaper on Dec. 14, the biggest discount since Oct. 21.

U.S. gasoline consumption is rebounding after blizzards across the East Coast sapped demand from motorists at the end of December, denting the profit traders get by buying the fuel in one market and selling it in the other. Exports to the U.S., the biggest gasoline market for European refiners such as Total SA, Statoil ASA and Preem AB, slid 61 percent last month, data compiled by Bloomberg and Clarkson Research Services Ltd. show.

“There’s an incentive for traders to capture the differential to make a profit,” said Thomas Zwick, an analyst at Lorentzen & Stemoco AS, a shipping consultant in Oslo. Increased shipments are “to be expected,” he said.

Imports to the U.S. East Coast fell to 448,000 barrels in the last week of December amid the cold snap, the lowest in 14 months, the Energy Department in Washington said on Jan. 5. Eleven tankers were chartered to transport the fuel to the U.S. Atlantic Coast for the whole month, down from 27 in November, according to data compiled by Bloomberg and Clarkson, a unit of the world’s biggest shipbroker. The vessels carried almost 395,000 metric tons, down from 1.02 million tons in November.

Rising Profit

Gasoline futures traded on the New York Mercantile Exchange reached $2.4532 a gallon on Dec. 31, the highest since Sept. 30, 2008. The futures declined 0.21 cent yesterday to $2.443. Prices in northwest Europe gained 2.7 percent to $852 per metric ton, or about $2.386 a gallon.

The profit from turning oil into gasoline in Europe is rising as U.S. demand recovers. The so-called front-month crack spread, a measure of refining returns based on the difference between gasoline and Brent crude, widened to $7.20 a barrel yesterday, the most since Jul. 30, according to PVM Oil Associates Ltd. data on Bloomberg.

The heaviest December snows in six decades swept across the U.S. East Coast in the final week of last month. New York City’s Central Park had 20 inches (51 centimeters) of snow on Dec. 27, the most for the month since 1948, the National Weather Service said.

Decline in Demand

Consumption of the motor fuel plunged 13 percent that week to the lowest since Hurricane Katrina disrupted Gulf Coast supplies in September 2005, according to MasterCard Inc.’s SpendingPulse report. Motorists bought an average 8.41 million barrels of gasoline a day, down from 9.61 million the previous week, MasterCard said.

While freezing temperatures curbed usage at the end of the month, demand for all of December rose 3 percent from a year earlier, averaging 9.2 million barrels a day, Amrita Sen, a London-based oil analyst at Barclays Capital, wrote in a Jan. 6 research report.

“Gasoline demand in the U.S. is kind of picking up sustainably from last year’s level, and the refineries here have to switch more to heating fuels and diesel, so I guess it makes sense to ship more gasoline” from Europe, said George Los, an analyst at Charles R. Weber Co., a Greenwich, Connecticut-based shipbroker.

U.S. gasoline stockpiles rose 1.5 percent in the week ended Dec. 31 as demand waned, government data showed. Inventories were 218 million barrels, compared with less than 208 million barrels in the week ended Nov. 12, the lowest level since Oct. 16, 2009.

Shipping Costs

The cost of shipping from Europe to the U.S. Atlantic coast dropped to Worldscale 127.08 yesterday, or about $6,616 a day, after fuel costs are taken into account, the lowest since Nov. 17, according to the London-based Baltic Exchange.

Cargill Inc. and Noble Group Ltd. chartered the Alpine Link and the Pacific Innovator, respectively, in December to load from Brofjorden, Sweden, where Preem operates a refinery, the Clarkson data show.

The fixtures from London-based Clarkson were drawn from single-voyage bookings. Long-term charters weren’t included.

Worldscale points are a percentage of a nominal rate, or flat rate, for more than 320,000 routes. Flat rates for every voyage, quoted in U.S. dollars a ton, are revised annually by the Worldscale Association in London to reflect changing fuel costs, port tariffs and exchange rates.

Source: Bloomberg; www.bloomberg.com

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