US seasonal gasoline blending demand to pick up

Demand for gasoline blending component has become under the spotlight in recent years. May-Sep is the period of gasoline blending peak in the US. Refined oil supply/demand imbalance has exacerbated since the outbreak of Russia-Ukraine conflict and the demand for aromatics in gasoline blending has been active since 2022, which has become a significant influencing factor to aromatics prices, price spread as well as the supply.

In Mar 2023, gasoline to crude oil price widened and demand from gasoline blending picked up which sustained for a relatively long period. In Sep of the same year, however, gasoline to crude oil price spread plunged, indicating the weakening of gasoline blending demand. Meanwhile, aromatics production from refineries increased and PX plant operating rate rose at the same time.

Then, how will it go in 2024?

The spread of gasoline to crude oil dropped to bottom in Oct 2023, but then rebounded and the rise in the spread is accelerating recently, reflecting the upcoming seasonal demand peak.

EIA gasoline consumption data reflected good demand for gasoline in the US recently compared to the same period of last years. Though the data for the week ending Mar 1 could not fully represent the prospect in Mar, it at least testified a good start.

In terms of inventory, it piled up heavily in the fourth quarter of 2023, which weighed gasoline to crude oil spread lower. Since Jan 2024, EIA gasoline inventory have been decreasing continuously. It is higher than the level in the same period of last year, but quite close to the level in 2022. But it should be noted that gasoline supply and demand structure had not been broken by Russia-Ukraine conflict in the first quarter of 2022, but the situation now is quite different.

In a conclusion, US gasoline fundamentals were upbeat, but it still needs to wait and see whether it could lead to increasing usage of aromatics in gasoline blending and opportunities of arbitrage from Asia to US.

Gasoline supply shortage in 2022 came as a result of refinery capacity reduction combined with demand surge. In 2024, gasoline supply flexibility could enhance with refining capability increasing. EIA data showed the processing capability of refineries in the US has been rising gradually since the latter half of 2022 and exceeded the level in the second quarter of 2021.

In terms of operating rate of refineries, it is not high currently but there's upward space. Therefore, any increasing demand could be sated if refineries raises operating rates.

In a conclusion, seasonal gasoline blending demand from the US would undoubtedly increase, but its impact on aromatics and arbitrage trading needs to be seen. The support to aromatics market could not be so strong than in last years.