U.S. refiners cut gasoline export prices on Panama Canal drought
U.S. Gulf Coast refiners have reduced gasoline export prices to their lowest since 2021 because restrictions on shipping through the Panama Canal have left exporters unable to send as much of the motor fuel to international markets.
Severe drought in Panama has left water levels too low for the transoceanic canal to function normally, forcing transit reductions through one of the world's shipping choke-points and impacting supplies of a wide range of goods.
The U.S. produces more gasoline than it consumes, most of which is refined along the Gulf Coast. A steady stream of exports is crucial to refinery profits.
The number of U.S. gasoline cargoes crossing the waterway nearly halved last month from year-ago levels. The canal is the shortest route for fuel tankers from the U.S. Gulf Coast to South America's Pacific Coast and eastern Asia.
Some less cost-efficient U.S. refiners may need to reduce production to prevent fuel inventories building, analysts said, as the canal maintains transit restrictions in place at least through year end. That could hit supplies of products like heating fuel, which see higher demand in the winter.
"The most dramatic pricing in the global gasoline market continues to be found in the U.S., where a seasonably long balance into the end of year and high inventories are seeing sellers pricing aggressively to place these barrels elsewhere," Philip Jones-Lux, gasoline analyst at data provider Sparta Commodities wrote on Tuesday.
The Gulf Coast is currently the cheapest source of gasoline to almost everyone in the Atlantic basin, Jones-Lux told Reuters.
Some Gulf Coast refiners have offered gasoline for export at as low as $75 a barrel this month for the first time since Feb. 2021, traders said. They have been forced to cut prices to make it economically viable for shippers without reservations who face higher costs to either secure passage slots through the Panama Canal's daily auctions or to take much longer routes sailing around it.
In normal conditions, Panama offers up to 36 slots a day for ships to pass the canal. That number fell to 22 at the start of December, according to statements from the Panama Canal Authority.
Shippers got some relief on Friday after the canal increased daily slots available from mid-January to 24, a number that will only remain in effect if weather conditions are favorable.
"Transit remains reliable so long as they are booked in advance," the Canal Authority said in an earlier statement to Reuters. It added that a gradual reduction in daily transit was necessary to conserve water but it is confident that this is a "temporary situation".
FOREIGN BUYERS LOOK ELSEWHERE
The restrictions in Panama have led foreign buyers of U.S. gasoline to begin sourcing product elsewhere. Chile, a big buyer of U.S. gasoline via the waterway, cut its imports from the Gulf Coast to the lowest level in three years, while Asian purchases were the slowest in half a decade, data from ship tracking service Kpler showed.
Lengthy disruptions in the Panama Canal could lead to Asian imports replacing U.S. fuel supplies to Chile and other countries on the western coast of South America, leaving Gulf Coast refiners to re-route their supplies elsewhere, said Charles Bonner, director at maritime and commodity data firm Marhelm.
Gulf Coast gasoline exports through the Panama canal fell about 40% in November from a year ago to 203,000 barrels per day, according to Kpler data.
Shipments of U.S. gasoline to storage facilities in the Bahamas were at their highest rate last month since the Covid-19 pandemic crushed demand in April 2020, said Kpler analyst Matt Smith.
Storage in the Bahamas instead of the U.S. Gulf Coast allows traders to avoid a hefty year-end tax bill on inventories in Texas and makes it slightly less expensive to ship to Europe and elsewhere when demand improves, a refined products broker said.
Gulf Coast gasoline stocks rose to a seasonal record of 87.53 million barrels at the start of December, according to data from the Energy Information Administration.
At the same time, refiners lowered their utilization rate by almost one percentage point to 90.4% in the week ended Dec. 8, the first decline since the start of November.
Stocks fell for the first time in a month during the week ended Dec. 8, but that was largely because refiners cut run rates and sent more shipments to the East Coast, Smith said.
Comments