Product markets and refinery margins, particularly in the Atlantic basin, were impacted in 2016 by the high level of inventories worldwide. Additionally, the increase in crude oil prices and the deceleration in diesel demand growth, mainly in China and the US, capped refinery margins.
In general, product crack spreads struggled to recover in the latter part of the year as the colder winter weather failed to boost prices. The US is typically a key driver of product markets in the run-up to the summer driving season. Despite weakness at the beginning of 2017, the US gasoline market has seen some recovery in recent weeks. After slowing by 170 tb/d y-o-y in January, US gasoline demand has been on the rise, averaging more than 9.3 mb/d in March, according to preliminary EIA weekly data.
Another positive factor has been the continued decline in US gasoline inventories, which have fallen by around 20 million barrels since the end of January. Heavy refinery maintenance and higher exports to Latin America have contributed to these draws. Middle distillates have also started to show a positive performance in the US. A continued draw has been seen in inventories amid demand reaching more than 4 mb/d in March following growth of 240 tb/d y-o-y.
Outside the US, the middle distillates market has experienced some recovery from the slump seen last year in several regions. Demand has picked up since 2016 and is expected to continue to recover over the coming months, supported by the improving economic performance, particularly in Asia where manufacturing PMIs have moved higher not only in India and China but also in Vietnam and the Philippines. Gasoil demand in China is expected to be supported by higher investments in infrastructure and increasing mining activities. Healthy economic activities in Asia will have a positive impact on all products in the region – particularly gasoil – in the coming months.
In Europe, gasoil consumption has also improved due to the improving economy across large parts of the continent, colder weather during the first quarter of 2017, and the high growth in vehicle sales. However, this momentum is not expected to continue over the remainder of the year. As a result, global gasoline and distillate demand is forecast to grow by around a combined 718 tb/d in 2017. Despite some downside risks, general expectations for demand growth for oil products in the coming months remain bullish, supported by firm economic performance across the globe and the expected increase in demand for gasoline over the driving season, mainly in North America and Asia.
Higher demand for oil products will encourage refiners to maximize throughput following the end of the spring maintenance season, amid new capacity coming on line in North America, Middle East and Asia. This in turn will increase demand for crude oil over the coming months and already has for long haul crude oil deliveries. The return of refineries from seasonal maintenance and healthy demand, together with the high conformity observed in OPEC and non-OPEC production adjustments, should enhance market stability and reduce the volatility seen in recent weeks.