Uncertainty around WAF government policy and expected refinery maintenance sees European gasoline markets rally

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Gary Clark:

Hello and welcome to the Platts Oil Markets podcast by S&P Global Energy, where today we will be talking about European gasoline markets, which are typically muted during the winter months amid lower demand and ample supply.

I am Gary Clark and I manage the EMEA clean refined products price reporting team based out of London. I'm joined by Geraint Moody who reports on European gasoline markets, and Matthew Tracy-Cook, who is a senior reporter looking at West Africa refined products. Welcome all. Europe typically produces excess volumes of gasoline, which are exported to the US, West Africa and elsewhere. But the start-up of the Dangote refinery has resulted in West Africa becoming less of an outlet for European gasoline. Well, in winter, European gasoline switches to a high RVP winter grade, which is typically blended from higher volumes of cheaper butane rather than naphtha. At the same time, demand is not as strong as during the summer months when the driving season is in full swing. All this should point to seasonally lower prices. However, gasoline prices are strong at the moment amid counter seasonal market strength. Let's start with you Geraint. What can we normally expect from European gasoline markets in the winter period?

Geraint Moody:

Thank you very much, Gary. Now before starting, I guess it might be worth mentioning that gasoline is very divided in two seasons, really. You've got your summer season and your winter season. Now summer, you're expecting strong driving season as people go on holiday. And the winter, you tend to see things softening in general. And what I mean by softening is we see supply thickening out. Normally you'll see ARA stocks usually increase throughout those winter months, and that's essentially as people look towards getting some of that summer gasoline and holding out until the next year to sell that on. What you tend to also see is a transition in the use of blending components. So as we know amid seasonality, you have changes in specifications.

So within summer, you tend to have a low RVP, high octane gasoline. While in winter you tend to have a high RVP and high octane gasoline. So we tend to see changes in specifications, whether that's the use of things such as reformate in summer, and then essentially phasing that out within winter, using things such as butane instead, which is a very high RVP, RVP being read vapor pressure in this situation. And so again, we just tend to see a bit of a change within the spec, and this is very much to reflect the changes, particularly in temperatures.

Gary Clark:

Okay. So given these kind of changes when we transition from summer to winter, right? You've mentioned that blending components typically change, and historically those blending components can be somewhat cheaper than the components used in the summer period, for instance. And you mentioned that there's stocking weaker demand relative to the summer period, but this winter season things are slightly different. What differences are you seeing Geraint?

Geraint Moody:

Yeah, so I think it's worth mentioning that we have seen both a demand side and a supply side shock, and we'll go into both of those. So on the demand side, we've seen a very, very strong West African pull, and this is something Matthew I'm sure will go into, but essentially we saw uncertainties around what was a potential fifteen-percent import tariff. And this essentially saw a lot of gasoline pulled from both the Northwest Europe region and the Mediterranean region. What this did was essentially incentivized your blending of gasoline. We saw record amounts of blending components such as butane and MTBE, which is Methyl tert-butyl ether, being pulled into the gasoline pool to serve those West African markets. Now, this isn't particularly a typical, but what was a typical about it was that it started very much pulling more of those blending components than were available at the time.

So we saw shortness within MTBE, we saw shortness within butane, and ultimately what demand there was within Northwest Europe and the med was significantly constrained. While there was this big flow of gasoline to West Africa, we were also already having supply side, not issues, but rather maintenances. We were seeing some refineries within the north also having turnarounds and yeah, essentially going through some of their refinery turnarounds. And this really provided a crunch for the market, and we saw cracks essentially going up to some of the highest levels we'd seen for a winter period in some time. I mean, we were at one point in time floating around $17 for the December's crack value.

Gary Clark:

On a barrel basis?

Geraint Moody:

On a barrel basis. That's right. And the reason why I mentioned that is normally looking back at previous years, you tend to see them around the single digit value, whether that's kind of seven or eight, at least from what we've seen in the past few years. Another very interesting aspect is we also saw a change within the appetite of blending components, which perhaps I can get into a little bit later. But essentially we saw a lot of different behaviors and characteristics within the winter market, which caused a bit of confusion in the market. I think essentially we were seeing a lot of very strong demand and just not enough supply to feed that.

Gary Clark:

Okay, understood. So gasoline cracks very high right now, and at the start I mentioned the Dangote refinery, right? And Geraint, you touched on this, right? With the expectation that the pull of gasoline into West Africa from Europe would be diminished, obviously with this enormous refinery gasoline focused now satisfying West African demand. But it seems the pull is very strong, right? Into West Africa for gasoline right now. So what's going on there, Matthew?

Matthew Tracy-Cook:

Yeah, so I think Geraint's touched on a couple of the big points. We've seen a really, really strong flow of gasoline from Europe into West Africa, particularly in November. So for the two last weeks in November, we saw something close to 800,000 metric tons flowing from the Northwest European Hub, Amsterdam, Rotterdam, Antwerp, and the Med into the West African market with the majority of that going to offshore Lomé, which is kind of the big trans-shipment hub in the Gulf of Guinea where the large vessels arrive and they perform STS and fill kind of various shorts in the region. So we've seen a huge volume arriving in the region despite the fact that the Dangote refinery has been up, it's been producing. We saw some maintenance in kind of the end of summer, early autumn, which was part of the reason why European cracks were quite strong.

But that maintenance has mostly been resolved. We're expecting more maintenance coming however. And so what that's leading to is a lot of gasoline flowing to West Africa with the expectation that Dangote is going to do further maintenance on the FCC. There are going to be some cuts in production in December and into January, but then also as Geraint mentioned, some threats around what could potentially be a 15% import tariff on refined products into Nigeria. It's a bit of a fluid situation. The Nigerian market is always quite fluid, to be honest. And this has been no exception. The regulator announced a 15% tariff several weeks later. The regulator said that the tariff was actually no longer in view, but then the same day there were articles that were claiming the president of Nigeria was actually still in favor of the tariff being launched just in Q1 or Q2 of 2026.

So currently expectations are that there will be some refined product tariff for imports into Nigeria, which I mean it clearly benefits the Dangote refinery, which is exporting significant volumes for import directly into Lagos. And if it was, which we understand it will be exempt from these tariffs, then that would be a huge boon for the refinery ultimately. But really these two factors, the expected maintenance at Dangote, the 15% tariff, but then also kind of a traditional seasonal trend, which is the fact that in winter West Africa pulls more gasoline than in summer. In winter, we see the end of the rainy season, right? And we see the roads dry out, people are driving more, you see more demand for all refined products, diesel and gasoline in particular. So we've seen this really significant flow is kind of there was much of pent-up demand in a way out of Europe into West Africa, but that demand has really been realized. And so we've seen a really large chunk of flow going that direction, and that's resulted in higher cracks in Europe.

Gary Clark:

That's understood. So obviously West Africa at the moment is an outlet for European gasoline. The other important outlet, right? Is the United States, which typically takes large amounts of gasoline from Europe. What's the supply and demand picture there?

Matthew Tracy-Cook:

Yeah. So I can touch on this briefly, and then Geraint can also kind of mention what he's hearing in the market. But traditionally, the United States is one of the two main importers of European gasoline volume. So Europe produces more gasoline than it consumes. It sends volumes to the U.S. Atlantic Coast and to West Africa. The U.S., just for some background demand so much gasoline, partly due to what's called The Jones Act, which essentially requires that a product that's shipped from US port to US port has to be on a US flagged vessel, which means that the shipping market is very tight for volumes from the US Gulf into the Atlantic coast, which ultimately just means that a lot of product goes from Europe into the US Atlantic coast. And this year we're seeing very low stocks. So last year-

Gary Clark:

In the US, sorry-

Matthew Tracy-Cook:

In the US, so last week, the Energy Information Administration's weekly stocks data for all the different PAD districts in the US showed that stocks in Atlantic coast were hitting a three-year low. And I think Geraint can touch on this a bit. There hasn't been a massive flow yet, but ultimately when stocks are hitting a three-year low in New York Harbor, the Atlantic Coast, that's ultimately going to have to pull volumes from Europe. So where we would expect, and I think maybe Geraint can fill us in on this a bit, some sort of volumes going that direction.

Gary Clark:

Understood.

Geraint Moody:

Absolutely, Matthew. And as you pointed out, I do think we are looking towards a very, very strong period of tightness within the US, and we will likely see some flows going through the US. I mean, it has been a really interesting talking point this entire year really, the actual flows of European gasoline to the US at least this year has been very weak. And this is fairly atypical to the extent that the US has always remained a very large pocket of demand. But I think essentially with, as Matthew pointed out, what we'd been seeing, whether that's within West Africa, whether that's maintenance-related news or looking at those import tariffs, I think essentially we saw too much strength in EBOP. We saw too much strength in the Euro-bob European gasoline market, and essentially this put too much pressure on that arbitrage window. And as a result, since essentially the beginning of summer, we have not seen barrels going to the US.

Sure, there may be some sort of term chartering, which we may see in terms of gasoline flows. But in terms of that strong spot tonnage availability, at the moment, it seems a little bit weaker. That's not to say that that potentially might open up. I mean, as Matthew pointed out, if you look at your USAC stock levels, they're at a three-year low, right? So in terms of where we see demand, it's very much towards the US. There had been some reciprocity between the US and the Caribs. So the Caribs is also a very strong refining region, and therefore we saw a lot of tonnage, material swapping, essentially mixing between those two regions. That was very much the picture that we saw this year. But with the demand levels that we're seeing, potentially that picture could open up into looking ahead into 2026.

Gary Clark:

Okay. So the US would like European gasoline if it could get it, right? So there's potential there for that, that are maybe to open up in the future. And just going back to the blending economics that you mentioned earlier, Geraint, you mentioned obviously we expect more butane to go into this winter European spec gasoline right now at the expense of reformate or naphtha. So what's the picture there?

Geraint Moody:

Yeah, it's a really, really interesting part of the gasoline market right now. And essentially what we'd been hearing and observing is that while initially I mentioned that you tend to see this transition of blending components such as reformate to high RVP blending components such as butane because there was such a kind of dearth of these blending components, particularly butane and MTBE. The market participants were essentially telling us that people are struggling to find high octane components that they could put into their gasoline blending pool. And as a result, we saw fairly untraditional blending components, at least for that time of year, entering the pool. So when I say untraditional, we're thinking things like BTX, which is benzenes, toluenes, and xylenes. Now, benzenes, toluenes and xylenes are very high octane components, but very low RVP, so they're not the ideal candidate for winter gasoline spec. But essentially, we'd already been seeing a very weak market within BTX, and this was basically driven on the back of a very, very weak petrochemical market.

If you look at toluenes, you've got the Covestro TDI plant, which has recently announced that they're out of action for several months, and this is taken a really big chunk of toluene demand out of the market. Same thing goes for xylenes as well. Some of your downstream demand, whether that's in PTA or PET, has very much subsided. And so suppliers are finding themselves in a situation where they go, well, there's a lot of length within the market, can we push that into the gasoline blending pool? And so throughout this period, we saw a lot of those aromatics really being pushed in. Same thing for reformate, right? reformate, again, a very typically summer spec gasoline product. There once again, we were seeing premiums for reformate really, really pushing up just because blenders were really trying to put that within their gasoline blending pool. At one point in time I think we saw, we even heard premiums at around plus 80 to the November swap at the time, which was a very considerable value.

Matthew Tracy-Cook:

I can also add that West Africa is a typical blending market. You have some more relaxed parameters around the specifications in West Africa. Though, there have been some recent laws that capped sulfur benzene out of ARA. Those laws don't necessarily apply to places like the West Med or the UK. And so you can see some blends that have much higher levels of benzene, much higher levels of different aromatics, because in Europe there's a 35% typically aromatics cap, but in West Africa that cap doesn't exist. So when West Africa demand is strong, you see a lot more of these other kind of niche blending components. You see quite a bit of demand for those.

Gary Clark:

Well, look, it is been a fascinating conversation. Obviously markets always remain dynamic and at times counterintuitive to their seasonal trends. So Geraint, Matthew, you've talked about how gasoline cracks in Europe are very high at this moment in time. Let's see if they revert to their typical levels in the weeks and months to come. But thank you Geraint and Matthew, and thanks for listening. Keep up to date with Platts live, the professional platform built exclusively for the energy industry. Have your say and join the conversation at Plattslive.com.