Gasoline will stay "cheap" for a few more months

[dan_s]

You may have noticed that gasoline prices at the pump have stay cheap (especially when compared to diesel).

Martijn Rats, CFA – Morgan Stanley
March 5, 2019 1:37 PM GMT

Gasoline cracks have been under pressure since late 2018, trading close to zero and even negative at times. But we see upside to spot and forward cracks from here, with spring maintenance, FCC run cuts, a seasonal uptick in demand and an IMO 2020 boost for all clean products.

Gasoline cracks have been under considerable pressure since late last year. The oversupply of light crude and undersupply of heavy crude that we wrote about here has boosted output of light products, while gasoline demand has been going through a softer patch. This has led to significant builds in gasoline inventories and weighed on cracks around the world, which have been trading close to zero or even negative for several months now. But we see limited further downside from here, with gasoline cracks starting to bottom out. We see three drivers which should provide upside to gasoline cracks from here.
> First, spring refinery maintenance should peak over the next month, tightening global supplies.
> Second, demand should see a seasonal uptick, and weaker pricing should also provide some tailwind.
> And third, we think cracks are now low enough to encourage run cuts at refineries' Fluid Cat Cracking (FCC) units, key in making gasoline.
These should help normalise inventories and allow cracks to move higher. And the IMO 2020 regulations provide an additional tailwind, supporting all clean products. Middle distillates should see the most demand support from the IMO regulations but the opportunity to divert Vacuum Gasoil (VGO) from FCC feed into the bunker pool also provides support for gasoline. Forward curves reflect the seasonality and IMO effect, but we see further upside.