Rising European petrol exports to U.S. force prices higher

Wed Feb 27, 2013 9:06pm IST

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* European exports to U.S. rise as refinery announces closure

* Rising exports lift European fuel prices

* Weaker pound, euro vs dollar also contribute

By Ron Bousso

LONDON, Feb 27 (Reuters) - European motorists, upset at high fuel prices, may be surprised to know that a significant portion of the continent's petrol is sold to the United States, where gasoline retails at less than half the cost.

Surprise could turn to alarm on hearing that those trans-Atlantic exports spiked sharply higher this month - just as fuel prices in euros and pounds sterling approached record highs.

Gasoline exports from European refineries - mainly in Britain, Italy, Spain, France and the Netherlands - to the U.S. east coast rose from 418,000 barrels-per-day (bpd) at the beginning of January to 666,000 bpd at the start of February after U.S. gasoline futures prices spiked.

That is around one quarter of the European Union and Norway's total gasoline production in January Of 2.6 million bpd.. The United States uses about 8.5 million barrels a day of gasoline.

"The demand from the U.S. is supporting gasoline prices at unseasonably high levels," said Harry Tchilinguirian, oil analyst at BNP Paribas.

"With low starting (U.S.) stocks and heavy drawdowns expected, imports will be increasingly critical in plugging the hole to meet U.S. demand. Imports will need to rise significantly from here in order to make up for a lack of supplies," Bank of America Merrill Lynch said in a note this week.

With motorists switching to diesel, Europe has long been over-supplied with gasoline and short of diesel while the United States, especially its densely-populated eastern coast, is short of gasoline.

A series of refinery bankruptcies and closures on both sides of the Atlantic over the past two years because of poor profits has reduced the European refining industry's ability to meet fluctuations in demand on both continents.

That means spikes in U.S. demand can cause jumps in European prices, if larger-than-normal volumes are diverted to the United States.

Benchmark European wholesale gasoline prices are up nearly 13 percent since the start of the year to around $1,102 a tonne.

"Drivers have been caught between the pincers of a pound weakened against the dollar and soaring wholesale prices," Britain's Automobile Association (AA) said. "This has broken the back of many family budgets and destroyed a great chunk of petrol demand," said its president Edmund King.

Adding to costs in a dollar-denominated oil market, the pound has dropped about 6.5 percent against the dollar since the start of the year and the euro is down 3.5 percent over the past month, bringing retail fuel prices to near record highs in both currencies.

That has hit demand. British and French gasoline sales both fell in January about 8 percent compared to a year earlier.

OIL COMPANIES, TRADERS UP SALES TO U.S.

Oil companies Total, Exxon Mobil, Royal Dutch Shell, BP and Valero supply gasoline to the New York region under term deals amounting to 20-30 cargoes a month, each carrying 30,000-40,000 tonnes, regardless of U.S. market prices.

Those companies plus traders including Swiss Vitol and Gunvor ship incremental volumes at times when relative market values in Europe and the United States make it profitable for arbitrage trading.

Traders said 10-12 additional cargoes were shipped in recent weeks to meet U.S. demand after U.S. Hess Corp announced in January the closure the 70,000 barrel-per-day Port Reading, New Jersey refinery.

U.S. fuel retail prices are much lower than in Europe because they carry much less tax. U.S. east coast retail gasoline lately is priced around 84 cents a litre or $2.10 per litre in the UK and $2 a litre on average in the European Union.

Booming shale oil supply in the United States has cut its crude import needs but the closure of six East Coast and Caribbean refineries over the past three years has cut 1.2 million bpd of U.S. refining capacity on an 18 million bpd market.

Some 1.8 million bpd of European refining capacity, 15 percent, has been mothballed since 2009, according to Deutsche Bank estimates.

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