The global refining business faced significantly greater pressure in 2024 than in 2023 or 2022, and those pressures are set to intensify. Refineries use crude oil as feedstock to produce refined products, so a typical way of evaluating profitability has been to look at product crack spreads, or product premiums to crude — particularly those for diesel and gasoline, which tend to make up the bulk of refinery production.
No Margin for Error:
Seismic Shifts in the Global Refining Industry
Argus Spotlight Report | December 2024
Product crack spreads have returned to within historical norms after several years of extraordinary highs. New refinery capacity is coming on line in the Atlantic basin, increasing product supply in a region where demand has mostly peaked or is declining. And the continued transition towards higher biofuel blends and the electrification of the global passenger fleet is accelerating ahead of bans on the sale of new internal combustion engine (ICE) vehicles in countries such as Norway from 2025, and more broadly across the globe in around a decade’s time — all raising important questions about the outlook for the refining industry.
Split into three sections — Refining, Diesel and Gasoline — our spotlight report provides expert insights into the ever-evolving refined products market. It includes a recap of 2024 and valuable forecasts for 2025, to help plan and inform strategic efforts in 2025.
Refining
Products cracks crash back to earth
Global refining margins rapidly returned to normality in 2024, after an extended period of unprecedented highs triggered by supply concerns after the start of the Russia-Ukraine war in early 2022.
Challenges facing the global oil refining industry have become more numerous and are set to intensify in the coming years.
Prior to 2024, the hyperinflation in refined product cracks fed directly into the financial results of oil majors. BP reported it had doubled its profits in 2022 to almost $28bn as the firm’s average refining marker margins also doubled on the year to over $30/bl. Shell reported its biggest-ever annual profits of $41bn in the same year, an increase of 140pc from $17bn in 2021. And TotalEnergies’ profits rose by 28pc on the year in 2022 to $20.5bn.
But that party is well and truly over. TotalEnergies in October 2024 said it expects its financial results to fall sharply, given much lower refining margins in Europe and the rest of the world. That announcement came as the French major’s European Refining Margin Marker fell to $15.40/t in the third quarter of 2024, more than halving from $44.90/t in the second quarter and marking a slide of almost 85pc from over $100/t in the third quarter of 2023. Finnish refiner Neste posted a profit of just €23mn ($25mn) in the third quarter of 2024, a collapse from €539mn a year earlier, and also pointed to substantially weaker refining margins. And US refiner Phillips 66 reported a third-quarter loss of $108mn in 2024, down from a $1.7bn profit in the same quarter of 2023 as refining margins more than halved on the year to $8/bl.
The erosion of global refining margins could mark a permanent shift away from the record profits of recent years. A number of supply side risks have begun to fade — and for Europe at least there is little prospect of hydrocarbon demand doing anything other than falling.
Markets became much less concerned about crude and product supply in 2024. Geopolitical threats to supply — such as the loss of Russian diesel supply to EU and US markets, and the near-complete closure of the Suez Canal east-west route by Houthi militant attacks in the Gulf of Aden — have been deftly absorbed by the market and have had dwindling impact on crude and product prices. Fears that escalating conflict in the Middle East might spill over and hit regional oil production provided temporary support to crude values in the fourth quarter of 2024, but Ice Brent crude futures still struggled to hold above $80/bl — and that is with Opec+ oil production cuts in place keeping supply from the market.
Supply concerns fade in the rear view mirror
Global supply of oil products has also become less problematic as sizeable, modern and more efficient refinery capacity has come on line in recent years. Start-ups in 2024 include the 650,000 b/d Dangote refinery in Nigeria, which began operations early in the year, the 400,000 b/d Yulong refinery in Shandong, China, which started up in the second half of the year, and Mexico’s 340,000 b/d Olmeca refinery. All three were still ramping up production in 2024, which of course means that the full impact on global product markets has yet to be felt.
Nigeria’s Dangote is notable for several reasons. First is the size of the refinery: at 650,000 b/d the plant is more than 45pc bigger than Europe’s largest refineries in Rotterdam. Second is Dangote’s location: well placed to service oil product demand in west Africa and the wider Atlantic basin, but also in Mideast Gulf and Asia-Pacific markets. Last, but not least: the refinery will at least partly quench west Africa’s gasoline import thirst, in a region that has long been a safety valve for Europe’s structural oversupply of gasoline. Dangote began supplying gasoline to the local market in September 2024, and Nigeria’s imports have already slowed. The effects will be felt still more acutely in 2025 as the refinery’s output continues to rise. Gasoline production in particular will be boosted by the ramp up of its residual fluid catalytic cracker (RFCC).
Fossil fuel demand growth is slowing globally, while in some parts of the world, such as Europe, demand is falling. This slowdown, coupled with rising capacity, presents an existential threat to the global refining industry.
Oil demand is still forecast to grow in 2025, rising by 1pc to 103.8mn b/d, according to the IEA, but with significant regional variations — OECD demand is forecast to contract by 0.2pc and non-OECD demand to grow by around 2pc. European oil demand will fall by 1pc in 2025 and settle 7pc below 2019 levels, while demand in Asia will pick up by 1.6pc in 2025 and will be 8.6pc higher than in 2019.
Slower industrial activity is playing a role in capping global crude and products demand. Europe has felt this most acutely. The Hamburg Commercial Bank (HCOB) eurozone manufacturing purchasing managers index (PMI) reading, compiled by S&P Global, remained below 50 between July 2022 and October 2024 at least, and fell to a nine-month low of 45 in September 2024. Any reading below 50 denotes a deterioration in operating conditions across the region.
Economic headwinds, engine efficiency and rising biomandates trim demand
In addition to slower economic activity, rising biofuels mandates around the globe are eating into demand for traditional fossil fuels. The rollout of E10 gasoline across Europe, which contains up to 10pc ethanol, has been gathering pace in recent years, with the greener blend available or mandated in 21 countries out of the EU plus Norway and the UK in 2024. Diesel across the region is mostly B7, a 7pc bioblend. But drop-in biofuels such as hydrotreated vegetable oil (HVO) — a 100pc biofuel — are becoming more prevalent as the EU seeks to meet the renewable fuels targets set out by its Renewable Energy Directive (RED). RED III is yet to be transposed by member states but sets out targets for a 29pc share of renewable energy in transport fuel by 2030, or a 14.5pc reduction in greenhouse gas (GHG) emissions intensity by the same date, relative to a 1990 baseline.
The US is an E10 market, but E15 blends are spreading, in particular since the US Environmental Protection Agency (EPA) has granted waivers to sell the blend all year round in each of the past three years. And China’s biofuels industry has grown so large that the EU has now enforced anti-dumping duties on the import of Chinese biodiesel.
Meanwhile, alongside biofuels’ rising market share, internal combustion engines themselves are becoming increasingly efficient across the globe. US drivers travelled a total of 3.3 trillion miles in 2023, the highest on record, according to Federal Reserve Bank of St Louis’ vehicle miles travelled (VMT) data. But even as driving rose above pre-pandemic levels, gasoline demand lagged 4pc below the 2018 and 2019 levels reported by the US Energy Information Administration (EIA). Cars and trucks delivered for sale in the US for the 2023 model year achieved an average 27 miles/US gallon (USG), up by 8pc from 2019 and by 36pc from the turn of the century, according to preliminary data from the US EPA.
The same is happening in aviation. Deliveries of Airbus’ A320neo soared to 1,379 between 2019 and 2023 — with a further orderbook of 3,621 aircraft over the past 10 years — up from just 545 aircraft between 2014 and 2018. The A320neo has an average fuel efficiency of 99.3 seat miles/USG of jet fuel (sm/USG), almost a third more efficient than the 74.9 sm/USG that the older A320 provides, according to AirInsight's analysis of US air traffic in 2023.
And along with improvements in engine efficiency, engines themselves are changing.
All major new refineries are now being commissioned outside Europe, where the rising trend by contrast is either permanent closure or conversion to biofuels production, storage or import/export terminals. Petroineos’ 150,000 b/d Grangemouth refinery in the UK will stop processing oil and become a refined products import/export terminal in 2025. In the same year, Shell will shut the 147,000 b/d Wesseling plant and BP will close a crude unit at the 257,800 b/d Gelsenkirchen refinery, both in Germany.
Summary
1.
The golden era for global refining appears to have come to a close as product cracks collapsed in 2024 and returned to typical levels after several years of hyperinflation.
Refined product markets globally are facing structural downward pressure as rising biomandates, economic headwinds and increasing engine efficiency impact demand.
Rising refinery capacity is weighing on industry profitability with ageing assets in Europe facing the highest risk of closure in the coming years, particularly as new assets ramp up production in the Atlantic basin.
Threats to global crude and product supply have been more easily shrugged off by the market and not caused sizeable, prolonged spikes in prices as lacklustre demand is increasingly in focus.
The global electrification of the passenger fleet is beginning to impact fossil fuel demand, with adoption in China — historically the key driver of oil demand growth — far outpacing uptake in the US and Europe.
2.
3.
4.
5.
3-2-1 crack spreads — a theoretical indicator of the profitability of refining, based on comparing the price of two barrels of gasoline and one barrel of diesel against three barrels of crude — have typically been used as a gauge of refinery profitability. In 2024, 3-2-1 cracks in Europe, using Argus’ benchmark European gasoline and European diesel assessments against the North Sea Dated physical crude benchmark, have averaged just shy of $16/bl at the time of writing. That marks a 25pc decline from around $21.50/bl across 2023 and a 30pc fall from over $23/bl in 2022, when highs of over $55/bl were briefly reached.
While 3-2-1 cracks remained above the pre-Covid 2019 average of around $10/bl through much of 2024, refined product cracks have now returned to within historical norms, and even dipped to as low as $6.50/bl towards the end of August 2024, prompting run cuts at European refineries in September ahead of the ramp-up of the seasonal maintenance period.
In the US, meanwhile, LyondellBasell will shutter its 264,000 b/d Houston refinery by the end of the first quarter of 2025, and Phillips 66 will halt its 139,000 b/d Los Angeles refinery in the fourth quarter of the same year.
But these closures will not outweigh the expected increase in capacity in 2025. Global refinery throughputs will still rise by 0.7pc to 83.4mn b/d in 2025 from 2024, according to the October 2024 edition of the IEA’s Oil Market Report, and throughputs in growing non-OECD markets will rise by 1mn b/d, while crude runs in mature OECD markets will fall by 0.4mn b/d.
The refinery closures planned for 2025 have been in the pipeline for some time, but they have probably been accelerated by the start-up of more efficient refineries around the world. And while the closure of refining capacity over the next decade — predominantly in Europe given a combination of ageing assets and rising biofuels obligations — may periodically tighten supply-demand balances and cause occasional spikes in margins, 2022 and 2023’s records are likely to remain firmly in the past.
Companies are closing refineries in the western hemisphere quite simply because of the difficulty of making a profit in the face of growing, more sophisticated capacity in markets east of Suez.
In announcing plans to convert Grangemouth to an import terminal in December 2023, Petroineos said the plant had incurred losses of more than $1bn in the past decade or so and that margins in the medium to longer term would stay negative. The firm pointed to excess refining capacity in northwest Europe and higher operating costs because of ageing refinery infrastructure, but also highlighted the uptake of hybrid and fully electric vehicles along with the upcoming bans on the sale of new ICE vehicles, which are expected to weigh on demand sharply from 2030.
Internal combustion engine vehicles will make up a sizeable portion of the global fleet for many years to come, but upcoming bans on new saIes — as countries around the world strive to meet increasingly strict carbon emissions targets — are changing the composition of the road transport fleet.
The sales growth of electric vehicles is reported to have slowed in 2024, at least partly because high inflation and the resultant cost of living problems globally have dented appetites for new car sales more broadly. But global electric car sales were almost 14mn in 2023, accounting for an 18pc share of the total, according to the IEA. That is twice the 9pc share in 2021, when just 6.5mn electric cars were sold around the world. And in the EU, battery electric vehicle sales rose by 14pc on the year in September 2024, gaining ground as sales of diesel and gasoline-fuelled cars fell by 24pc and 19pc, respectively.
De-ICE-ing the windscreens
Global indicators have also moved into contraction territory. The JP Morgan global manufacturing PMI fell to 48.8 in September 2024, marking the third consecutive month below a reading of 50 and the fastest rate of decline in almost a year. Germany was the largest drag on the index, with the US posting a reading below 50 as well. Importantly the figure for China, long the driver of global growth, also came in below 50.
Importantly for global product fundamentals, electric vehicle sales in China — a country that has for decades been the driver of oil demand growth — have been booming.
In September 2024 sales and production of new energy vehicles in China hit an all-time high and made up almost 46pc of total auto sales, according to data from Chinese Association of Automobile Manufacturers (CAAM). Indeed, mirroring its behaviour over biodiesel, the EU in 2024 applied import duties on Chinese electric vehicles to protect automakers in the bloc.
The rise in the electric fleet will not be linear, not least because early adopters of the technology have had many years to enter the market, while consumers that are on the fence are only recently being presented with makes and models that are price competitive with ICE vehicles. The political mood music has also shifted of late, particularly in Europe, where a rise in right-leaning political influence has slowed the extension of environmental policies. Italian prime minister Giorgia Meloni has called the EU’s ban on the sale of ICE vehicles from 2035 “self-destructive”, while Germany and the Czech Republic — two of Europe's largest manufacturers of cars and parts — have asked for the rules to be relaxed. And the Swedish government cut the country’s greenhouse gas emissions reduction targets for 2024-26 in the final months of 2023, putting the brakes on demand for biofuels in the region.
This may have contributed to a broader slowdown in green technology ambitions among the largest players in the energy industry. Shell announced a pause on construction of its planned 820,000 t/yr biofuels facility in Rotterdam in 2024. At almost the same time BP said it was putting on hold plans for new biofuel production facilities at its 238,500 b/d Cherry Point refinery in the US and its 95,000 b/d Lingen refinery in Germany.
Nevertheless, while the transition to cleaner and greener transport may hit bumps on the way, the direction of travel remains clear.
How the changing ownership of Europe’s ageing refinery assets affects how long they will continue to operate remains to be seen.
As oil majors divest assets, does the speed of transition shift?
An ownership shift in the global refinery industry over recent years could meanwhile impact the life span of numerous assets in an uncertain way. These assets, particularly in Europe, have been sold off by oil majors and moved into the hands of private equity or trading firms — a trend that could continue as larger companies seek to appease shareholders by touting their green credentials. Smaller, private-sector companies may have a higher risk appetite and be more willing to extract the last drops of value out of ageing refining assets. Global trading firms in particular, profiting from commodities market volatility this decade, have amassed sizeable financial arsenals. They are spending the cash on physical assets, which ensures they have access to product flows and enhanced trading optionality.
Europe has been refining a much lighter diet of crudes since the ramp-up of US shale crude exports in the late 2010s. Crude arriving at European ports had an average gravity of 35.4°API in 2021, according to Vortexa tanker tracking and Haverly Systems’ assay library, soaring from as low as 32.6-32.7°API in 2016-17. Then from 2023, Russian Urals deliveries through the Druzhba pipeline to Poland and Germany stopped, to be replaced by seaborne receipts — which continued to average much lighter than Urals.
Lighten up
With a lighter crude intake, EU refiners reported higher proportional yields of naphtha and gasoline in 2023 than 10 years earlier, but lower yields of gasoil and fuel oil. The changes in yield were only between 0.5 and 2 percentage points, but this had a huge impact on final volumes, especially for products that make up smaller shares of the total. Lighter crude intake meant the EU produced 18pc more naphtha in 2023 than in 2013, despite huge cuts to refining capacity. On the other hand, the combination of lighter slates and cuts to capacity meant the bloc produced 28pc less fuel oil than a decade earlier.
Poland has been at the forefront of the revolution in crude intake over the past two years, forced to replace Druzhba receipts with much lighter seaborne receipts at Gdansk. Poland’s gasoline yield rose by two percentage points year on year in 2023, while gasoil yield fell by three percentage points. That means roughly 500,000t more gasoline — and 800,000t less gasoil production — in Poland over the course of the year.
The shift will affect refinery profitability at the margin, as Europe’s assets were not designed to run such a light crude feedslate, and therefore operational bottlenecks are increasingly likely.
Global diesel margins weakened sharply in 2024. Demand continued to decline in Europe and started to fall in China. At the same time, new refineries in the Middle East, Nigeria and Mexico achieved or approached full operations. And the world finished adapting to the G7’s sanctions on Russian oil, implemented over the previous two years. These collective pressures overwhelmed any notes of price support from geopolitical events or domestic policies. The result is that diesel margins look too weak to keep the world’s least profitable refineries alive in 2025.
European diesel demand is in chronic decline, a trend dating back to before the pandemic, because consumers — prompted by government policy and the rise of the “low emission zone” at a local level — are shifting to gasoline and alternative fuels. Over recent years, some of Europe’s loss in diesel demand has been Asia’s gain, as trucking-intensive manufacturing has been relocating from Europe to Asia. But in 2024, even Chinese diesel demand turned abruptly downward, as trucking-intensive construction activity stalled and consumers turned strongly to electric cars.
Low demand in Europe and China meant diesel stocks swelled in 2024
The construction slump is not the only obstacle to Chinese diesel demand — consumers there are adopting electric vehicles much faster than in Europe or the US. As much as 46pc of total auto sales in China in September 2024 were either electric or hybrid, extending a string of consecutive gains month on month and far ahead of a 32pc share in the full year 2023. The rise of CNG and LNG-powered trucks in China, as well as elsewhere around the globe, is also eroding fossil-fuel demand — affecting the industrial fleet in particular which has long been ring-fenced from the encroachment of new energy vehicles.
Struggling global demand has not yet deterred growth in diesel production. Two of the Middle East’s newest refineries started producing European-standard diesel consistently in 2024 — Saudi Arabia’s 400,000 b/d Jizan plant and Oman’s 230,000 b/d Duqm plant, both of which now regularly export to Europe. Nigeria’s 650,000 b/d Dangote refinery and Mexico’s 340,000 b/d Olmeca refinery are both in the process of ramping up.
These trends have pushed down diesel margins in Europe and Asia in 2024 — as the product has piled up in tanks.
Summary
1.
2.
3.
4.
Global diesel demand is facing pressure as consumers increasingly shift away from diesel engines towards new energy vehicles or gasoline-hybrids as bans on the sale of new ICE vehicles loom on the horizon.
Slowdowns in industrial activity in Europe and China are weighing on diesel demand more acutely than that for gasoline, given its heavy use in industry.
Russian diesel has successfully been reallocated away from buyers in the EU to the extent that Russian diesel exports hit record highs in 2023 and remained firm in 2024, at the expense of fuel oil exports — buoyed by the start of new refinery cracking units designed to upgrade heavy residual products.
Global diesel stocks subsequently built up in 2024 compared with previous years, weighing down diesel cracks in all major hubs and bringing them to within historical norms after several years at elevated levels.
European consumers are choosing more gasoline, hybrid and pure electric vehicles — putting diesel’s market share into rapid retreat. Germany’s national register featured 5pc fewer diesel cars in 2023 than in 2017, while in France the decline was well over 10pc.
What changed in 2024 is that growth in Asian diesel demand failed to offset the continued contraction in European demand. In August 2024, China consumed around 160,000 b/d less diesel than a year earlier. Argus estimates that three-quarters of that decline resulted from weaker construction activity, which depends heavily on diesel-fuelled trucks. Chinese real estate investment in January-August slumped by 10.2pc year on year. Chinese policy makers moved to stimulate bank and household liquidity in September, but at the time of writing it remains to be seen whether that will put the country’s construction activity back on track.
The ‘dieselgate’ scandal of 2015 may have affected European consumer sentiment about diesel in a lasting way. Volkswagen was found to have added devices to some of its diesel engines designed to limit nitrous oxide emissions under test conditions, but not under normal conditions. Some European governments now tax diesel cars more heavily than gasoline cars, which may reflect driver perceptions of the fuel.
In September, diesel cargoes loading at Amsterdam-Rotterdam-Antwerp (ARA) fell to their lowest premium against North Sea Dated crude since early 2022, before the start of the Russia-Ukraine conflict.
In the same month, Singapore gasoil swaps sank to their lowest premium to Dubai crude since 2021. ARA diesel stocks were 20-25pc higher year on year in the third quarter of 2024, according to data from Eurostat and consultancy Insights Global. Singapore onshore middle distillate stocks were around 5pc higher year on year by the end of the third quarter, according to Enterprise Singapore. And US diesel stocks averaged 6-7pc higher than a year earlier in the third quarter, according to the EIA.
Geopolitical and domestic political events lent some support to diesel margins in 2024, but the impact was so small they ultimately served primarily to illustrate how much pressure there is on margins overall.
Houthi militants in Yemen made the southern end of the Red Sea practically impassable for almost the whole year, meaning diesel from the Mideast Gulf and India took two extra weeks to reach Europe via the Cape of Good Hope. Around 40pc of diesel reaching the EU and UK from outside the region in 2024 has come from east of Yemen, so the average tonne of diesel Europe imported took significantly longer than usual to arrive.
Geopolitics and domestic policy insufficient to resist pressure on margins
But this failed to provide any significant price support. February 2024 brought the highest European diesel margins of the year, but these were still $4-5/bl below autumn 2023, before the Houthi attacks began. Mideast Gulf and Indian sellers found their bargaining position deteriorating as Asia-Pacific demand stumbled, making them just as keen as European buyers to make sure cargoes kept moving around the Cape of Good Hope.
Another element of price support that preoccupied trader conversations early in 2024 was Ukraine’s drone strikes on Russian refineries. The attacks shut down several units, keeping some of them off line for months. It is not clear how much of the year-on-year decline in Russian diesel exports can be attributed to these attacks — but after rapid growth in recent years, Russia’s exports were still higher than in any year from 2016-21.
In some countries, domestic policy shifts added to diesel demand in 2024. The Swedish government dramatically softened its rules on biodiesel blending, which market participants said added 1mn t of fossil fuel diesel demand across the year. And the Australian government in July 2024 increased the amount of emergency fuel stocks that companies are required to hold to 32 days of cover from 20 days, effectively sucking well over 500,000t out of the market.
Rising hostility between Israel and Iran from late September highlighted a small but growing chance of major supply disruption in the Middle East. If this lent support to diesel margins, the effect was quickly blurred with that of Europe’s refinery run cuts around the same period, which provided some buoyancy to diesel cracks. At the time of writing, the tension between Israel and Iran has not materially disrupted the flow of crude or products from the Mideast Gulf.
Almost two years since the EU banned Russian diesel imports, global trade has settled comfortably into a new structure. The EU implemented its ban from February 2023, following the UK, a move that at first generated serious concern about supply in a region which historically relied on Russia for more than 10pc of the diesel it consumed.
2023’s fears about Russia sanctions have faded into obscurity
In the end, EU buyers did not need to pay a premium to attract new imports to replace the Russian supply, because contracting demand meant they could simply import less.
Across all external suppliers, the EU and the UK imported around 800,000 t/month less diesel and gasoil in 2024 than in 2019, Vortexa data show. Mideast Gulf, Turkish, US and Indian diesel have compensated for around two-thirds of the lost Russian volumes — the remainder has not been missed.
But the world has not lost Russian diesel — it has simply been reallocated to new destinations at somewhat lower prices. The freight cost associated with longer export routes has been met by a cut in Russian sellers’ former margin. Russia’s Baltic-loading diesel now mostly circles all the way around Europe to Turkey, instead of landing in the northern ports of Germany and France. Farther away still, Russia’s second-largest diesel market is now Brazil. This reallocation has indirectly helped the EU to replace Russian imports – Turkish refiners now sell more of their diesel to the EU, while meeting domestic demand with cheaper Russian imports. US sellers meanwhile have lost their share of the Brazilian market and have had to offer their diesel into Europe instead.
As Russian sellers have developed new markets, they have managed to claw back some of their lost pricing power. The Argus-assessed discount for Russian-loading diesel against European-delivered diesel averaged only $121/t in September 2024, the narrowest since the EU implemented its Russian product import ban 17 months earlier. The discount averaged $257/t in the first month of the ban.
The redirection of trade flows has been so successful that Russia exports more diesel now than before the conflict began, aided by a stream of new refinery units designed to upgrade heavy residual products to diesel.
Russia exported well over 4mn t/month of diesel and other gasoil in 2023, by far the most of any year on Vortexa’s record, despite a brief self-imposed export ban in the fourth quarter of that year. Diesel exports in 2024 were on track to tie for the second-highest on record — possibly held back from a new record by disruption caused by the drone strikes. Between 2021 and 2023, Gazpromneft, Rosneft, Tatneft and Forteinvest collectively installed five new hydrocrackers and three new delayed cokers. A side-effect of the increase in upgrading capacity is that Russian heavy fuel oil exports this year were on track to be the lowest on Vortexa’s record, by a wide margin.
The strongest support for diesel margins in 2024 was provided by a wave of voluntary refinery run cuts from the end of the third quarter and into the start of the fourth, in Asia and Europe.
The margin for diesel against crude in northwest Europe began to look challengingly low for refiners in the third quarter, ahead of a relatively light planned maintenance period. The ensuing fall in crude volumes arriving at European ports indicated that units without maintenance were slashing throughputs as well. The IEA forecast that 240,000 b/d of economic run cuts would be made in Europe in the fourth quarter of 2024. Maintenance and run cuts contributed to lifting European diesel margins to around $16/bl in early October, from as low as $12/bl in late August.
South Korean refiners cut runs in September 2024, likewise responding to weak margins. With this impetus, the premium for Singapore gasoil swaps to Dubai crude recovered to more than $13/bl in early October from a 30-month low of less than $10/bl in September.
Cuts to production could provide the greatest support for European diesel margins in 2025, since some refining units are already officially scheduled for mothballing. Petroineos has said it will close its 150,000 b/d Grangemouth refinery in Scotland. BP and Shell have both said they will close crude units at their western German sites. These moves will take nearly 400,000 b/d of crude unit capacity out of the market, or around 3pc of Europe’s total in 2024.
2024’s strongest support for diesel margins came from production cuts and 2025 may be the same
Summary
1.
2.
3.
Gasoline demand is coming under pressure from the uptake of new energy vehicles, particularly in China where uptake is rising rapidly — the uptake of gasoline-powered hybrids in Europe has however lent some short term support to demand.
Gasoline supply is set to rise as refinery capacity continues to climb in 2025. The start of new refineries in the Atlantic basin such as the 650,000 b/d Dangote refinery in Nigeria and the 340,000 b/d Olemca refinery in Mexico will inject supply into a region where demand has mostly peaked, closing key export outlets and impacting Europe’s ability to export its structural oversupply of gasoline.
Gasoline cracks returned to historical norms in 2024 after several years of support. No octane crunch materialised in the Atlantic basin and cracks notably trended lower over the northern hemisphere summer, historically a period of firm support to cracks given buoyant demand.
Global gasoline cracks start strong but fade through 2024
The global gasoline markets were relatively muted at the start of 2024 compared with a year earlier. Crack spreads to crude were steady in Asia over the first quarter, but firmed in Europe and the US through the first three months of the year. Towards the end of the second quarter, global gasoline cracks began to move in step with each other and broadly faced downward pressure, trending counter-seasonally lower over the peak demand summer months as the octane supply crunches of previous years failed to materialize, given ample availability and headwinds to demand.
In Europe, domestic demand was tepid in January, with inland flows up the Rhine river to Germany from the ARA hub ebbing away once refinery maintenance in early December 2023 was finished. Export demand was also lacklustre. Refineries on the US Gulf coast were running well, which meant supply from the Gulf coast priced European product out of the Atlantic coast market — something which became a recurring theme for much of 2024. But gasoline crack spreads still opened well above recent historical averages.
Expectations of supply disruptions began to rise in February 2024. A cold snap in the US was touted as severe enough to impact refinery operations, potentially boosting the need for gasoline shipments from Europe to help cover any US shortfall. Gasoline crack spreads edged higher as a result, rising to $13.38/bl in February from $9.45/bl a month earlier. Exports to the US increased month on month, but supply shortages mostly failed to materialise — largely because output from US refineries remained relatively robust — and transatlantic flows were lower than a year earlier.
Even so, gasoline margins continued to creep up as a heavy refinery maintenance season began to take shape in Europe and the US. At the peak of maintenance in Europe, around 1mn b/d of refining capacity was off line, according to Argus estimates. Gasoline cracks were particularly well supported, because a whole slew of gasoline-producing units were off line, and European exports dropped sharply — to a then near four-year low. Cracks rose in March to average $17.31/bl and would hit their widest premium to the five-year average during the year, at $8.87/bl.
Summer driving season octane crunch fails to materialise
The European gasoline market strengthened further in April as loadings rebounded. Cracks averaged $21/bl over the month, marking the highest average crack spread for the year. But from May, a new chapter in the gasoline market opened as cracks began to fall counter-seasonally. Gasoline cracks in Europe dropped to an average of $20.70/bl during the month, even though they were still kept well above historical averages by lingering supply problems.
The summer driving season in the US, bracketed by Memorial Day at the end of May and Labor Day at the beginning of September, typically marks the highest demand period in the Atlantic basin, including for the highly export-oriented European region. But transatlantic flows in 2024 failed to pick up as much as market participants had expected, and total shipments from Europe in May-August fell by around 69,000 b/d from a year earlier, Kpler data show. Ample supply in the US was largely responsible for this. Refineries on the Gulf coast ran at average utilisation rates of 90.4pc in the first three quarters of the year, up by 1.6 percentage points compared with the five-year average. Domestic arbitrages appeared workable as well, curbing the requirement for European supply at times during the summer months.
Gasoline flows to west Africa from Europe also dropped in the summer of 2024. An apparent structural decline in imports began in May 2023, when the Nigerian government removed its long-standing gasoline subsidy, while simultaneously floating the country’s currency. The result was that domestic prices rocketed, in turn squashing demand in the largest gasoline-consuming country in the region. European exports to west Africa were around 104,000 b/d lower in 2023 compared with a year earlier. Things got worse in 2024. Deregulation proved short-lived; and the floating currency meant credit and financing issues became pervasive, ultimately compounding the impact on flows. Exports to west Africa were around 28,000 b/d lower in the first three quarters of this year compared with the same period a year earlier, Kpler data show.
While export demand underperformed relative to historical averages, traders in Europe noted through the summer that domestic demand was strong. But without strong exports, margins continued to fall counter-seasonally through the summer.
Crack spreads dropped to $14.87/bl in June — marking the first time since October 2023 that they had fallen below five-year average levels — and moved lower still in July to $13.66/bl.
The rare summer decline in the gasoline market was also visible in the market’s forward structure. During June and July the gasoline forward curve moved into contango, with prompt prices at a discount to forward values, classically a sign of short-term price weakness.
The first switch into contango occurred on 11 June and was sustained until the end of the month. Rarer still, the curve also dipped into contango on 1 July. In the corresponding session a year earlier the Eurobob gasoline July swap was at a $19/t premium to the August swap, and since 2009 a contango during the summer had occurred only twice — in 2020 when much of Europe was under Covid-19 lockdown measures, and in 2016 when the front of the curve was pressured by high European inventories and abundant US supply.
Cracks continued to fall over the summer, and in August and September margins fell to $10.90/bl and $8.37/bl respectively. In October, margins picked up again as refinery maintenance tightened the pool of gasoline and gasoline components. As November began cracks appear to have found a floor at around $6.25/bl.
Gasoline cracks to face pressure from rising supply
Gasoline prices are likely to come under further pressure in the short term. Colder weather during the winter in the northern hemisphere — especially in the large consuming regions in the Atlantic basin — typically means that driving activity falls and refining margins are likely to decline.
The bout of strength in the wider gasoline complex at the start of the fourth quarter, principally support for high-octane components, is likely to subside as refinery runs pick up after seasonal maintenance. Counter to this, if naphtha remains strong, lower-octane component values may be supported as a result.
As gasoline-naphtha spreads narrow, blenders limit the naphtha content of the blend as the economic incentive to maximise it weakens, which supports lower-octane components relative to higher-octane ones as the requirement to offset the lower-octane naphtha diminishes. If the economics for blending remain lacklustre, it is possible that the volume of gasoline being blended in key hubs drops, ultimately supporting values, at least in the short term.
The medium-term outlook, while likely tumultuous, appears to be bleaker as balances lengthen in the Atlantic basin. The long-awaited 650,000 b/d Dangote refinery began producing gasoline in September 2024 and appears largely on track to be a significant producer during 2025. At full scale it should produce around 300,000 b/d of gasoline, basically covering Nigeria’s domestic requirement. West Africa imported 376,000 b/d from Europe in 2023, and 370,000 b/d in January-November 2024. Without this outlet for European exports, the structural overhang will grow.
Added to this, the 340,000 b/d Olmeca refinery in Mexico will ramp up production in 2025, albeit after several delays this year, and there remains some doubt about when in fact significant gasoline output will get rolling. Mexico is the US’ largest export outlet and takes just under half of US gasoline exports, according to Kpler data. Once Olmeca is producing meaningly quantities of gasoline, it is likely the US Gulf coast will have a gasoline surplus, sell the surplus domestically, and further reduce the USA’s interest in importing from Europe.
Market views on the impact of rising supply in the Atlantic basin — especially from the Dangote refinery — have been mixed. Most are bearish, although some see trading opportunities if output from the west African plant starts to fluctuate sharply.
The most likely scenario however is that Europe will need to learn to live with lower demand, either by cutting refinery runs, or through an effective forced rationalisation.
Long-term trends are also set to weigh on the gasoline market. The push for larger emissions reductions and the move to electrify the car fleet will accelerate, meaning demand for gasoline will drop significantly. In the shorter term, it is likely that ethanol will play a bigger part of the gasoline mix, reducing demand for the fossil fuel component. The US EPA approved year-round sales of 15pc ethanol gasoline (E15) in the US midcontinent from 2025, and a bill was brought forward in Congress at the end of September 2024 to allow permanent year-round sales of E15 across the US.
In Europe, EU legislative direction is still towards a ban on the sale of new ICE vehicles from 2035; and in the UK the new Labour government has pledged to reinstate a ban from 2030, bringing it forward from 2035.
Further afield, the fastest uptake of new energy vehicles (NEVs) — battery electric, plug-in hybrid and fuel-cell vehicles — is in China. Passenger NEV retail sales totalled 1.12mn in September, up by 51pc on the year and accounting for 53pc of total passenger vehicle retail sales. September marked the third consecutive month in which NEV sales outpaced ICE vehicle sales, according to data from the China Passenger Car Association. The rapid uptake of NEVs appears to already be undermining gasoline demand. During the Golden Week holiday from 1-7 October, electric vehicle charging on highways hit 10.3mn kWh, displacing an estimated 28,000 b/d of gasoline over the holiday, National Energy Administration figures show. But the figures do not capture EV use in cities, which suggests that the impact on gasoline consumption is likely to have been higher. Argus Consulting forecasts that Chinese gasoline demand will peak in 2024 at about 3.6mn b/d.
Argus Eurobob barges — Regional changes with Europe
E10 gasoline, with a higher ethanol content than E5, is being introduced in an increasing number of countries in Europe as a way for governments and companies to help meet their GHG emission reduction targets. “The continued expansion of E10 across Europe shows that countries are looking for meaningful ways to reduce emissions and meet their renewable energy and fuel quality targets,” European renewable ethanol association ePure says.
As many as 21 countries have either mandated the use of E10 or have introduced it alongside E5 at the pump. These are: Ireland, Norway, Austria, the UK, France, the Netherlands, Belgium, Luxembourg, Romania, Bulgaria, Latvia, Lithuania, Estonia, Denmark, Sweden, Finland, Slovakia, Hungary, Germany, Poland and the Czech Republic.
E10’s share of the gasoline mix in countries where it has been introduced is rising. In France, E10 took a record 60.7pc share in January, according to road fuel federation SNPAA. And the Petrol Retailers Association estimates that E10 accounts for around 90pc of gasoline sales in the UK — one of Europe’s largest gasoline markets.
Argus estimates that E10 gasoline now represents approximately 60pc of all gasoline consumption in Europe, and a greater share still in northern and central Europe. Germany remains the major demand centre for E5 gasoline in northern Europe, but it mostly covers its own demand and is a net exporter. The picture is changing in Germany too. E10 accounted for just 15pc of Germany’s gasoline mix as recently as 2021, after it was introduced alongside E5 in 2011. That share had increased to 26pc by 2023, according to data released by the German Bioethanol Industry Association.
Belgium and the Netherlands — where Argus benchmark Eurobob gasoline barge assessments measure price in the ARA trading hub — are solidly E10 markets.
Europe relies on exports to clear its structural supply overhang. This dependence means European refiners prefer to make a gasoline with the fewest possible quality parameters that might restrict its sale to other markets.
Eurobob non-oxy is a more fungible product, exportable to more markets because it does not contain components such as MTBE, which is banned in the US and Canada. This makes non-oxy the principal transatlantic export grade. The US allows up to 10pc of ethanol in gasoline at the pump, and increasingly up to 15pc, which means Eurobob non-oxy gasoline is a natural fit for this key export market.
Furthermore, as supply increases in the Atlantic basin, the question of fungibility becomes more important because traditional outlets for lower-quality grades are disappearing.
There has been a corresponding shift in trade liquidity to Eurobob non-oxy barges. Argus has tracked trade in the Eurobob barge market over the past five years, and there is a clear decline in liquidity in the oxy gasoline market in favour of the non-oxy grade. Non-oxy volumes reported to Argus in 2023 were a record 1.52mn t — an increase of 21.6pc from a year earlier. By contrast, oxy volumes fell by around 15.4pc on the year, to 1.59mn t, bringing the split between the two grades to near parity. And in January-October 2024, the share of non-oxy has continued to rise, pushing above the 50pc threshold, with 1.47mn t trading on the grade over the period, compared with 1.43mn t of oxy trade. February marked the largest percentage of non-oxy trade, at 67pc.
In response to shifting physical markets, a corresponding evolution has occurred in the Eurobob barge market. The methodology underpinning the benchmark Eurobob oxy (E5) grade changed from 1 January 2024, moving to a differential price using a non-oxy E10 basis, while the latter remained a volume-weighted average (VWA) price.
One of the noticeable changes since the introduction of this amended methodology has been a marked reduction in the volatility between the two gasoline grades, creating a more consistent picture of where gasoline value lies on a given day.
Structural changes to demand — whether the result of slowing economic growth or net zero legislation — will continue to weigh on the global gasoline and diesel markets in the coming years — and quite possibly forever. Given that the two road fuels account for the bulk of global refinery production, refining profits across the globe will come under increasing pressure, and that can only be exacerbated by the ramp up of new production capacity. Ageing refinery assets and falling demand mean the Atlantic basin will bear the brunt of this downward pressure — most especially Europe, where the “rationalisation” of refining capacity is proceeding at a seemingly unstoppable pace.
Fob ARA diesel cargo vs North Sea Dated
Percent of tonnes of diesel or gasoil arriving in EU or UK, which spent more than 40 days at sea
Average days spent at sea by a tonne of diesel or gasoil arriving in EU or UK from outside
Delta 2024 vs 2019, diesel/gasoil receipts in EU/UK
Russia diesel/gasoil export loadings by sea
Elliot Radley
Editor, European Products
Elliot is the editor of the Argus European Products report, managing a team responsible for publishing daily price assessments covering the whole refined products barrel, including Argus’ benchmark gasoline barge assessment. Elliot has covered markets ranging gasoline, diesel, North Sea and West African crudes, and biofuels during his more than eleven years at Argus. Elliot graduated the University of Bristol with a Master’s degree in chemistry. Prior to joining Argus, Elliot worked for pulp and paper consultancy Hawkins Wright.
Jonah Sweeney
Lead European Gasoline Reporter, European Products
Refining
Contents
Benedict George
Deputy Editor, Oil Products
Read the full report
The global refining industry is facing a collapse in profitability as demand growth slows, new capacity ramps up and consumer uptake of electric vehicles rises further.
Diesel
Production is running ahead of consumption, and something will have to give way.
Gasoline
Global cracks face mounting pressure as rising capacity in the Atlantic basin satiates demand in critical supply outlets.
Refining - Global 3-2-1s
Source: Argus Media
EU-27 + UK & Norway crude imports
Source: Kpler
Diesel
Source: Vortexa
Source: Vortexa
Source: Argus Media
Source: Vortexa
Source: Vortexa
The as-yet-unclear balance between European production cuts and production growth in other regions will have a powerful impact on diesel price direction in 2025. Among the greatest unknowns facing the diesel market are the timeframes within which the 650,000 b/d Dangote refinery in Nigeria and the 340,000 b/d Olmeca refinery in Mexico will reach full operations. Both were processing crude in the third quarter of 2024, but at less than half their nameplate capacity. As the assets ramp up to full utilisation, they could add more than 500,000 t/month of diesel supply to the Atlantic basin market. But significant uncertainty remains about exactly when that will happen.
Gasoline
European gasoline cracks
Source: Argus Media
May-August European gasoline exports
Source: Kpler
European gasoline exports
Source: Kpler
Source: Kpler
WAF gasoline market - headline figures
Global fungibility
Changes in 2024
Argus Eurobob barge trade volumes
Source: Argus Media
Shifts in the physical Eurobob barge market
Eurobob oxy vs non-oxy
Source: Argus Media
Conclusion
Latest Oil Market Highlights
Stay up to date with global market developments with our bi-weekly insights.
Sign up now
Your go-to resource for the most topical news and analysis affecting the European diesel market, plus reflective Argus price assessments.
Expert Diesel Insights
Read here
Get complimentary view of our key European diesel prices each month, direct to your inbox.
European Diesel Price Highlights
Sign up now
Keep up with the everchanging gasoline landscape with our resources page for the latest information, including our price coverage.
Expert Gasoline Resources
Learn more
Discover our full range — using trusted and transparent market-appropriate methodologies — including:
Daily Price Reports
Business Intelligence Services
Forward Curves
Near-term Outlooks
Long-term Analytics
The insights provided in this report form just some of the intelligence available in our extensive range of solutions for the refined products market.
Introduction
Conclusion
The global refining industry is facing a collapse in profitability as demand growth slows, new capacity ramps up and consumer uptake of electric vehicles rises further.
Production is running ahead of consumption, and something will have to give way.
Global cracks face mounting pressure as rising capacity in the Atlantic basin satiates demand in critical supply outlets.
Rhone Energies — a joint-venture between trading firm Trafigura and US-based infrastructure company Entara — reached an agreement to buy ExxonMobil’s 133,000 b/d Fos refinery on the French Mediterranean coast in 2024. This after Trafigura also took a stake in Italy’s 320,000 b/d Priolo refinery in 2020. The Priolo refinery was later acquired by Cyprus-based GOI Energy in 2023 after EU sanctions on the import of Russian crude made the refinery economically unviable for operator Lukoil. And trading firm Vitol has bought a controlling stake in Italian refiner Saras, including the firm’s 300,000 b/d Sarroch refinery in Sardinia, which will be run as a stand-alone business.
Authors
Read bio
Read bio
Read bio
Jonah is the primary reporter covering the European gasoline market from Argus in London, including the Eurobob barge market. Jonah joined Argus in 2021, initially covering Europe and Africa marine fuel markets. He holds a bachelor’s degree in agribusiness from the Royal Agricultural University and a master’s degree in political economy from the University of Sheffield.
Benedict is the deputy editor of the Argus European Products report. Before holding this role, he was responsible for assessing Argus’ European diesel and gasoil prices from 2019 to 2023, during the Covid-19 pandemic and the Russian invasion of Ukraine. Elliot has also led Argus data and news coverage on the European refining industry throughout that time. He holds an MA degree in Financial Journalism from City, University of London and a BA in Philosophy, Politics and Economics from Oxford.
Benedict is the deputy editor of the Argus European Products report. Before holding this role, he was responsible for assessing Argus’ European diesel and gasoil prices from 2019 to 2023, during the Covid-19 pandemic and the Russian invasion of Ukraine. Elliot has also led Argus data and news coverage on the European refining industry throughout that time. He holds an MA degree in Financial Journalism from City, University of London and a BA in Philosophy, Politics and Economics from Oxford.
Another structural shift in Europe-west African trade flows resulted from the implementation of tighter regulations governing the quality of fuel exports from Belgium. Brussels brought these into force on 14 September, which ultimately led to the harmonisation of quality regulations governing fuel exports — particularly those bound for west Africa — across the whole of the ARA complex. The Netherlands had tightened quality regulations on exports in April 2023, after which there was a steady — but pronounced — shift towards Belgium and away from the Netherlands as the key blending and export hub for gasoline bound for west Africa. In the year before the Netherlands’ ruling, it was responsible for around 50pc of exports from ARA to west Africa, but this dropped to just 27.5pc the in the following year, Kpler data show.
Prices, news and analysis for all key petroleum products, including the benchmark for northwest European gasoline.
Argus European Products
See details here
Whatever your needs, we have a solution for you
About Argus
Argus is the leading independent provider of market intelligence to the global energy and commodity markets. We offer essential price assessments, news, analytics, consulting services, data science tools and industry conferences to illuminate complex and opaque commodity markets.
Headquartered in London with over 1,400 staff, Argus is an independent media organisation with 30 offices in the world’s principal commodity trading hubs. Companies, trading firms and governments in 160 countries around the world trust Argus data to make decisions, analyse situations, manage risk, facilitate trading and for long-term planning. Argus prices are used as trusted benchmarks around the world for pricing transportation, commodities and energy.
Founded in 1970, Argus remains a privately held UK-registered company owned by employee shareholders and global growth equity firm General Atlantic.
