On December 1, Platts assessed LLS at around $49.90/b. Today, we assessed it at about $50.17. On the same day, we assessed dated North Sea light at around $46.45/b. Today, it was assessed at around $45.36/b, a move, but hardly a big one for 3 1/2 months. Pretty dull market, huh?
Not for a moment. What's stunning is what has happened to key products that are trading around those benchmark crudes. The quickest way to get a handle on how much they have moved is by looking at the products price as a percentage to the crude price. In early December, gasoline was still struggling to come out of its almost year-long slump against both diesel prices and crude prices.
The big shift since then has been propelled by several factors. Diesel demand tends to be tied more closely to industrial and commercial activity, and it has slumped considerably with the fall in the world economy. Gasoline demand certainly is affected by that as well, but in the US, all signs point to gasoline consumption up year-on-year. Last year at this time, consumers were feeling the squeeze as pump prices headed toward more than $4/gal.
Lousy margins on gasoline led refiners to do the logical thing: make less of it. And strong margins making diesel led to making more of it. For example, according to the Energy Information Administration, the gasoline yield in US refineries slumped to 41.9% in June of 2008, the lowest level the agency recorded since it first reported that figure back in 1993. (That number rose to 45.6% in December.) Distillate yields, by contrast, reached 29.7% in December, the highest figure ever recorded by EIA.
That proved to be quite a combination: slightly rising gasoline demand, falling diesel demand, climbing distillate yields and extremely low gasoline yields last summer. The market reacted to that. On December 1, Gulf Coast ULSD stood at 131.4% of the price of Light Louisiana Sweet. Today, with the price of LLS at roughly the same level it was back then, that percentage had dropped to 106%.
For conventional Gulf Coast gasoline, the percentage relative to LLS in December was 88.4%; it is up to 110.1% now. Europe also has undergone similar, though not identical swings. It is traditionally diesel short, and diesel dependent for automobiles, so its consumption is not going to swing as much if gasoline falls out of bed. Still, the movement has been striking. Gasoil with 10 ppm, North West Europe barges, was 153% of dated North Sea Light in December 1. It's now about 122.1%. Gasoline, CIF NWE, was 104% on December 1, but sunk below 100% on a few days around the turn of the year. It has rebounded to 114%.
So don't let the relative stability of the price fool you. There's lots going on.
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