Gasoline is "Winning Clearly" Over Diesel, says Saras Director

ANTWERP—The global decline in oil prices has led to a surge in demand for oil products, and there is a growing emphasis on gasoline over diesel.

That is according to Marco Schiavetti, the director of supply and trading at Italian refiner Saras SpA, who spoke to The Wall Street Journal on the sidelines of a conference.

Gasoline consumption is growing at double the rate of diesel, Mr. Schiavetti said, adding "gasoline is winning clearly, and diesel is losing, particularly in Europe."

Over the last 10 years, many companies have invested in increasing diesel production. According to Mr. Schiavetti, this has caused almost a shortage of gasoline, as demand has grown very fast but the supply available from refineries has fallen.

European oil products demand will likely grow over 2016, but the pace of growth will begin to level off after that, the Saras director said.

While gasoline demand is expected to remain strong, a global diesel surplus is expected to continue to grow because of production in the Middle East and sharply falling Asian demand. Refineries have struggled to switch more production over to gasoline to reduce diesel output.

Meanwhile, Mr. Schiavetti said it is unclear what impact the arrival of the new Iranian crude grade will have in Europe. Iran has launched the new crude, known as West Karun, specifically targeting European refinery customers.

"It just depends on how aggressive the Iranians will be in terms of pricing. It is just a matter of competition between the Middle East producers to gain [European] market share," Mr. Schiavetti said.

The middle distillates market has also benefited from a closer spread between the two main crude oil benchmarks, West Texas Intermediate and Brent. The closer relation between the two has leveled the playing field between European and U.S. refiners.

"There was a big distortion in the previous years when WTI was moving completely away from Brent and giving an extremely positive advantage to U.S. refineries," Mr. Schiavetti said.

"Now this effect has completely disappeared so at least in terms of costs of crude supplies, we are on the same level."

Further ahead, Mr. Schiavetti said a large amount of European middle distillates will continue to stay in Europe while demand remains high. Exports will also continue to flow to the Middle East and markets in western and northern parts of Africa, he said.

The executive also said that European refineries have benefited significantly from recent swings in currencies, with the euro losing ground against the dollar. The firm's cost base is in euros while revenue is in dollars, "so obviously this has been positive for us," he said.

Write to Miriam Malek at miriam.malek@wsj.com

(END) Dow Jones Newswires

January 27, 2016 08:05 ET (13:05 GMT)

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