European refining margins under pressure from recent increase in crude oil prices

European refining margins have come under pressure from recent increases in crude oil prices, just as gasoil cracks have weakened due to the anticipation of lower demand at the end of winter.
 
This weakness is expected to be short lived, with the impending switch to summer-grade gasoline likely to bolster profitability. 

Indeed, the renewed weakness in feedstock prices last week helped lift Brent cracking margins (after assumed operating costs) by $2.65 to above $5 per barrel, flirting near 2015 highs, and complex margins remain above the five-year average. 

Gasoline was the standout performer in the energy complex last week, as the RBOB contract rose w/w by 6.5%, supported by robust demand and emerging supply problems. 

Unicredit notes in a report on Tuesday:

• We believe gasoline will likely be the main driver for the oil market this year as consumption is expected to be solid in most countries. Simple margins however, have retreated, as fuel oil prices remain under heavy pressure due to the high cost of shipping excess production to Asia.
• Mediterranean Urals hydrocracking margins are counter-seasonally high after rising last week by $2.30 per barrel. We believe diesel cracks should strengthen in the coming weeks in both markets, as refinery turnarounds commence in Europe. 
  
  
• We estimate that turnarounds peak this month with over 1 mb/d of capacity offline, which eases slightly in April, to 0.99 mb/d. 
  
  
• Furthermore, large amounts of Russian ULSD are being diverted to the US East Coast, while US Gulf Coast exports to Europe are likely to be limited by good demand from Latin America for US diesel supplies, as well as agricultural demand in the US Midwest.