Understanding the rise in Northwest European gasoline stocks

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Joel Hanley:

Hello and welcome to The Oil Markets Podcast from S&P Global Commodity Insights. I'm Joel Hanley. In this episode of the podcast, we'll be looking at gasoline in Europe. Demand is down, stocks are up, but what does it mean for price?

As we all know, Americans talk about gasoline prices like British people talk about the weather, but with the weather dominating the conversation stateside right now, we thought it'd be a good opportunity for us here in London to talk about gasoline. Now, while winter in the Northern Hemisphere grinds on, gasoline demand in Europe is currently at its expected seasonal lull. Now, that's nothing new, but what's a little different this time around is the growing stockpile of gasoline in the refining and storage hub of Amsterdam, Rotterdam, and Antwerp, where S&P Global Commodity Insights data shows inventory levels at its highest in years.

So what factors are driving this? Is it lower demand, lower exports, or maybe over ambitious refining runs? Well, who better to tell us than two Platts price reporters covering the gasoline markets, Matthew Tracey-Cook and Ernest Puey. Welcome both.

Ernest, let's start with you. Could you give us an overview of the factors at play at the moment? What's going on in the gasoline market in Northwest Europe?

 

Ernest Puey:

Yeah, absolutely, Joel. So as you mentioned, the stocks in the ARA region based on the data we have from Insights Global are at the multi-year highs, at least the highest on record based on the data that we have, sitting at around one and a half million metric tons right now. Naturally, much of it comes from the fact that most people are staying in, it's cold outside, icy weather, less sunshine, always a good recipe for staying indoors.

But beyond that as well, I think the build this round comes amid a market structure that is in a very deep contango. So based on the assessment data that we have been publishing since 2021, we're sitting in the deepest contango right now for the market at about an average of minus $6.60 cents per metric ton for the first half of January and this is the deepest it's been since 2021 and that is leading to market participants being incentivized to store with later dated barrels yielding higher prices. So taking that into consideration, we're looking at a market that's optimizing the systems right now, holding onto inventory and potentially selling later for better prices.

 

Joel Hanley:

But Europe or Northwest Europe particularly is traditionally quite long gasoline. It's a big export market for the US traditionally, and they would send back middle distillates back in the old days. That's changed a bit, that dynamic recently, but can't they just send it elsewhere?

 

Ernest Puey:

The arb to the US, at least for the winter barrels, is very much closed. They're not taking much of that. There has been some flows out of the region to the Caribbean's, and that's been pretty competitive for summer grade, 60 KPA barrels yielding a premium over the regrade of about $10 per metric ton based on the sources that we speak to and what they're saying. There were some expectations that stock would've ticked down lower last week with the potential of some barrels heading down south to the Med where the Med North right now is at a ten-month high or so.

But that said, the overall flows are pretty weak right now, market sources are describing it as not much action to quote one such source. Now add to that the fact that when we look at the Med right now, there was a recent buy tender by the Egyptian General Petroleum Company, and based on what we've been hearing, it's been aggressively offered down. And what that potentially signals is that the exporters from the north are seeing a lack of opportunities to send out their barrels and potentially trying to lock in their flows to the Med, even if they were to take a bit of a hit on the Med North hedge right now.

 

Joel Hanley:

So the export opportunities are somewhat limited, as I just mentioned to Ernest, Matt, the US is a major importer of European barrels typically, and of course there are other dynamics springing up all over the place with Africa. We could probably come to that in a moment. What are the expectations about the US now that President Trump has just been re-inaugurated just this week here, and we've seen all sorts of executive orders. He's been talking about tariffs for a long time. Where does that leave Europe when it comes to exporting to the US do you think?

 

Matthew Tracey-Cook:

Thanks, Joel. Yeah, there's a lot of uncertainty surrounding what Trump is actually going to do with these tariffs. In the direct aftermath of the inauguration, actually the dollar fell quite a bit and the euro jumped because it didn't seem like he was going to enact quite as aggressive of tariffs as people had thought. But then the next day he said, oh, potentially February 1st, we're going to see a 25% tariff on Mexico and Canada. Also notably for Europe, I mean, this is the market I cover, he's been talking about 10% tariffs across the board. And so this could have a really interesting impact on the arbitrage flows of gasoline to the US.

On the one hand, this could make the arbitrage more difficult, if you're a seller all of a sudden you're exposed to this 10% tariff. There's an interesting analogy in the UK ever since Brexit, there's been this 5% duty applied to imports of material that isn't of EU origin and what we've seen is that has led to inflationary pressure on the gasoline price in the UK. So I think a lot of people are talking about there could be real inflationary pressure on many goods, many commodities and gasoline is not an exception there.

 

Joel Hanley:

Well, I mentioned the Americans talk about gasoline prices like we talk about the weather, and indeed, ultimately they've been promised lots lower prices across the board, not just for gasoline, but for everything else. And so it'll be interesting to see if Trump can deliver that, but ultimately tariffs tend to get passed onto the end consumer in some form, right? So as you say, there's an inflationary risk there, no doubt.

Another interesting area, I mentioned it briefly earlier, and you and I whenever we speak on the podcast we're always talking about Dangote, always talking about West Africa because it is a, I'm about to use the phrase game changer again, it is a game changer not only in West Africa, but also in Europe and potentially into Asia and the US as well. So what are you seeing there about West African demand and indeed the latest on Dangote?

 

Matthew Tracey-Cook:

Yeah, so as you've said, West Africa has been a major importer of European gasoline for a very long time. In fact, it kind of trades places with the US as the single biggest importer of gasoline from Europe. I've been talking with a lot of traders recently about this question, and some traders more recently have said that they think that there's been a lot of hype around Dangote, and we've certainly been covering Dangote very significantly, and some traders feel like it's a little bit overhyped.

It seems like there is a bit of a bearish picture next year for gasoline and Dangote is part of that. But I think traders, that's where the opportunity lies, when the market thinks one thing, if you can take a contrarian position and be right about that then you can make a lot of money. So I think some traders think that potentially it's a bit overhyped, it could lead to some more volatility as well because it's a single-train refinery. If it goes down, if there's any issue with the single-CDU, then the Nigerian marketers could come to Europe and buy a lot very quickly, and we could see a big upward spike in prices, in buying pressure. So those are kind of the main considerations that we're looking at at the moment in West Africa.

 

Joel Hanley:

Cool. Thanks Matt. And Ernest, we're talking to traders every day of course, trying to find out what's going on, in the short term when it comes to prices what are you hearing about? You say there are these deep discounts in the contango structure, where is the out for European gasoline other than storage, do you think? Or is it just going to have to sit and wait?

 

Ernest Puey:

Well, when it comes to the sit and wait picture, I think, like I said, market participants are very much happy to hold onto them right now. And given that there's ample storage and ample supplies in the tanks right now, that could definitely spill over into early summer where we have a picture of ample supply in the region and therefore not as tight of a picture when it comes to an uptick in demand ahead of summer.

That said, on the paper side of things, the Q2 arbitrage to the US seems pretty healthy right now so that's giving some optimism to market participants where that could potentially be hedged out in to see some flows of barrels to the US. But apart from that, the other one that people are looking out for would be the potential of tit-for-tat tariffs potentially between say Mexico and the US. And if such a case were to arise, we could potentially see some flows out of Europe, straight to Mexico, supplementing that TA arbitrage that has been keeping a lid on the uptick in stocks over on this side of the world.

 

Joel Hanley:

Very good. And just looking more structurally, just finally back to you, Matthew, if we look at the rise of electronic vehicles, we talk about Norway quite a lot and how much they've done there. Do you think that structurally we're starting to see gasoline demand wane as a result of interest in ecological environmental issues or is there still good baseline demand that's going to keep this market going for a while?

 

Matthew Tracey-Cook:

I think at least for the next four years, we've been talking about Trump, and Trump is a really key factor here. I mean, in his inauguration speech, he was talking about drill, baby drill, he talked a lot about getting rid of some of the subsidies for electric vehicles and that kind of thing, that could potentially delay this transition significantly. And you're seeing some knock-on effects in Europe as well.

So I think it's entirely possible that we could see gasoline demand very robust for the next several years. Talking with traders, one of those contrarian positions that I was hearing about was one trader was saying, people are saying, next year it's going to be very bearish but actually with diesel doing quite poorly this trader thought that refineries were going to cut runs due to diesel demand going down which in combination with gasoline demand remaining robust was going to see gasoline demand quite well-supported next year. And that gasoline demand being robust is coming from the US, right? So I think we are going to see a bit of delay in terms of the downturn.

 

Joel Hanley:

Excellent. Well, thank you very much both. Always a really exciting market to cover, as I say, it's the one that's on most people's lips. When you think about oil, the most visible part to the consumer is of course gasoline so it's a conversation we're going to keep returning to.

Well, thanks again both, and thank you for listening. And before we go, I'm delighted to say that registration for the Platts London Energy Forum 2025 is now open. You can join us in London on February the 24th as the Global Energy community convenes to kick off International Energy Week. The key theme is serving tomorrow's markets, looking at how we integrate traditional energy markets and future energies. And once again, we'll be bringing you unparalleled insight, networking opportunities and discussions on the pressing challenges and emerging trends that will help define the energy landscape of tomorrow. The event, as always, is free to attend, and you can find all of the information on the link in your show notes. This episode of The Oil Markets Podcast was produced in London by Felix Fernandez.