Petrol prices are hovering near record highs
Petrol has been one of the best performing commodities so far this year. European petrol prices have increased by 29% so far compared to Brent crude and diesel, which rose 11% and 7%, respectively, in the same period.
According to MasterCard Inc., US petrol sales increased by 2.6% last week to 8.87m b/d from 8.65 mb/d the week before, as seasonal demand is starting to pick up. Higher petrol prices are weighing on demand, and US petrol demand for Q1 is down by 5.6% compared to last year. The price of US regular gasoline reached USD 3.941/gallon, up 0.023/gallon from the week before. Petrol prices have still not crossed the psychologically important USD 4/gallon level except from on the West coast of the US where petrol traded at USD 4.23/gallon. In Europe regular gasoline prices reached USD 1,185/tonne yesterday, just 3% below the all-time-high at USD 1222/tonne in July 2008. Eurobob petrol for immediate loading rose to a record high of USD 1,220/tonne.
Petrol prices show more strength than would have been the case looking at the weak structural demand as refinery closures in the US, Europe and Caribbean have tightened the market. Petrol is expected to remain strong for the next few months as the US East coast will require additional petrol imports from Europe to make up for the refinery closedowns in the US. Crude is the main driver of petrol prices. Sanctions on Iran, threat of a conflict in the Middle East and non-OPEC supply outages have been driving crude oil prices higher this year. When the world economy accelerates and demand for oil picks up in H2, the physical supply/demand balance is expected tighten further and push crude prices higher.
High and increasing petrol prices are clearly putting pressure on President Obama before the election this autumn. This has increased the pressure to use the strategic petroleum reserves (SPRs), and talks have been going on between the US, UK, France and Japan of a coordinated release. The European oil import embargo on Iranian oil will begin in early July at a time when oil demand seasonally picks up, as the US driving season starts and warmer temperatures increase the demand for oil to fuel air-conditioning systems. Petrol stocks in the US are almost 3% above the level seen at this time last year compared to Europe where petrol inventories are around 8% below. At the moment there are not oil or petrol supply shortages in neither Europe nor the US. According to the International Energy Agency (IEA): “… prices are not a trigger for collective response action, as these can be caused by other factors and the goal of the response action is to offset an actual physical shortage, not react to price movements”. The story is somewhat different in the US. In our opinion, it is highly questionable if the current supply/demand outlook qualifies for an emergency stock release. We expect a new coordinated stock release to have a short-lived effect, as continuing political tension, especially between Iran and the west, will drive the risk premium back up again and thereby also petrol prices.