Gasoline trade flows in the Atlantic Basin are changing. Access to less-expensive crude oil and natural gas is making U.S. refineries more competitive, boosting refinery runs and putting Gulf Coast refineries at an advantage to supply Atlantic Basin gasoline demand. With U.S. gasoline demand mostly declining or flat, Gulf Coast refineries are increasing supply to markets in Latin America and West Africa and redrawing the map of Atlantic gasoline flows.
Price differences among the U.S. East Coast (PADD 1), U.S. Gulf Coast (PADD 3), and Europe determine gasoline flows in the Atlantic Basin. With U.S. East Coast demand exceeding available domestic sources of supply given existing infrastructure and regulations, the marginal barrel of gasoline supplied to the East Coast is imported. Historically, much of this supply has come from refineries in Europe.
European refineries were originally built to maximize gasoline production, but European diesel demand has grown much more quickly than gasoline demand, in part due to policies in many European countries favoring diesel-fueled cars, which have steadily increased the diesel share of motor fuel. This shift in demand has led Europe to export large amounts of gasoline and to import substantial volumes of diesel. A typical trade pattern has been to ship cargoes of gasoline from Europe to the U.S. East Coast, and to return to Europe with a cargo of diesel from the U.S. Gulf Coast. This flow, also known as the trans-Atlantic arbitrage, is made possible when the price of gasoline in New York Harbor is greater than the price of gasoline at Europe's main oil trading hub at Amsterdam-Rotterdam-Antwerp (ARA) plus the cost of freight, or when U.S. Gulf Coast diesel prices are sufficiently discounted to ARA prices to cover the cost of shipping to Europe.
Before 2012, Atlantic Basin gasoline trade was fairly predictable. Cargoes from Europe, Canada, and the Caribbean were exported to the U.S. East Coast (Figure 1). Additionally, European cargoes were supplied to Africa and Latin America. The United States also exported more modest amounts of gasoline from the Gulf Coast to Latin America, mostly Mexico.
However, these patterns are changing. Increased global demand and higher prices for diesel fuel have increased refining margins, encouraging U.S. refineries to increase crude runs to record levels to maximize diesel production. High refinery runs have also increased gasoline production at a time when U.S. consumption is mostly declining or flat due to vehicle efficiency gains, resulting in high gasoline inventories and lower prices.