Fuel stocks reflect slow fall in demand

London : Figures showing lower overall European gasoline inventories but higher levels in the main trading hub reflect the view that demand will decline long-term yet be strong in coming months, traders and experts said.

Data from industry monitors Euroilstock showed end-January gasoline stock levels in 16 European countries were 10 per cent below a year earlier.

Stocks in independent storage in the Amsterdam-Rotterdam-Antwerp (ARA) area, which often reflect traders' views on the short-term market, have been near historic highs since late-January as the forward curve shows a seasonal rise into May.

Dutch analyst and ARA data provider Pieter Kulsen said a contango in the gasoline market -meaning prompt contracts are cheaper than those for later delivery - has contributed to the build at Europe's major oil product trading hub.

Mounting interest

"There is a mounting interest in gasoline. It is contango that is initiating market activities now," he said.

Traders are stocking up with gasoline because European swaps suggest its prices will rise about $34 a tonne from February to May and the curve, or contango, is sufficient to cover the storage cost until spring.

Traders also said demand from Nigeria had been steady and the African nation was taking imported fuels promptly.

"We are seeing some demand from Nigeria and there are no queues at the port," a trader said.

Nigeria has bought gasoline totalling 136,000 barrels per day for the March-April period from traders, mostly European. The volume was 2,000 bpd higher than December 2007-February, industry sources said.

Higher prices

Tightly stretched supply across Europe may prompt spot demand from refiners in case of unexpected plant outages. That could drive prices even higher than the record levels hit in January due to crude oil's surge, traders said.

Citigroup said in a research note that a rebuild in oil product inventories may be hampered by reduced refinery activities. Some refineries have started scheduled maintenance and a few others have cut runs due to recent poor margins. The low end-January gasoline stock levels reported by Euroilstock may become the norm in Europe.

Refiners have been investing to change plant configurations to boost distillate output at the expense of gasoline because of an expected decline in demand from the region and traditional overseas customers.