Australia's gasoline demand revival hopes fueled by easing COVID-19 restrictions

Australia's gasoline demand will likely to continue rebounding in the lead-up to the year-end holiday season as the country remains committed to reopening its borders amid high vaccination rates, shining a beacon of optimism despite the detection of omicron variant cases in several states in recent days, industry sources told S&P Global Platts.

The likely surge in driving activity by motorists visiting family and friends, shoppers and other holidaymakers during the Christmas-New Year and summer holiday driving holiday season augurs well for gasoline demand, while forecasts of an economic recovery next year have also boosted overall sentiment, industry sources said, adding that the positive momentum was also being reflected in healthy refiner margins.

Australia's gasoline demand in the fourth quarter was expected to grow by 26% from Q3 due to the easing of movement restrictions in major cities Sydney and Melbourne, but to edge up only 0.8% year on year, JY Lim, advisor oil markets at S&P Global Platts Analytics, said Dec. 8.

Mobility data was holding up well in early December, and higher than in November, Lim said.

Driving activity, a proxy for gasoline demand, averaged 16.23% above baseline levels in November, swinging from 1.53% below baseline levels in October, mobility data from Apple showed, as lockdown restrictions were progressively eased.

"We expect Australia's gasoline demand in Q1 2022 to rise by another 5% on quarter, but there is now a risk of downward adjustment with the emergence of new omicron variant in the country as the government may re-impose measures to contain the virus," Lim added.

Fueling optimism

However, high vaccination rates were lending confidence to reopening plans even as the severity of disease caused by omicron and its transmissibility were still being studied, industry sources said.

According to the Australian Government Department of Health website, 93.3% of people over the age of 16 had at least one vaccine dose as of Dec. 12, and 89.2% were fully vaccinated.

According to media reports, the country was also set to reduce the waiting time for receiving COVID-19 booster vaccines from six months to five.

Meanwhile, Australia's real GDP is projected to grow by 3.8% in 2021, 4.1% in 2022 and 3% in 2023, the Organization for Economic Co-Operation and Development, or OECD, said in its Economic Forecast Summary December 2021 on its website.

"The economy is recovering as strict containment measures first imposed in some states in mid-2021 have now been lifted," it said.

This comes after a period of lackluster consumption amid slowing economic activity as protracted pandemic-related movement restrictions earlier this year dimmed recovery prospects.

Australia's automotive gasoline imports fell 42% month on month to 2.498 million barrels in September, and were down 4.8% year on year, latest Department of Industry, Science, Energy and Resources data showed.

Demand for non-oxygenated gasoline remained poor in September due to extended lockdowns in the country's two most populous states, New South Wales and Victoria, and movement restrictions between states.

Refiner margins supported

BP and ExxonMobil have announced the closures of the Kwinana and Altona refineries, respectively, leaving Australia with only two operating refineries -- Viva Energy's 128,000 b/d Geelong and Ampol's 109,000 b/d Lytton refineries -- and increasing the country's reliance on refined product imports.

The Australian government in late June approved legislation to provide a lifeline to the two remaining refineries. The Fuel Security Bill 2021 will provide around A$1.8 billion ($1.34 billion) in funding to the two remaining refineries through the boosting of domestic stock levels of gasoline, gasoil and jet fuel.

Geelong refinery is committed to the government's Fuel Security Package for the next seven years to mid-2028, and refining margin volatility risk reduced through the government's Fuel Security Services Payment, with opportunity for upside outperformance, Viva Energy said in a presentation on Nov. 24.

"Margins are relatively healthy at the moment, similar to last month. Moving forward Australia is expected to continue as a net importer," a refinery source with knowledge of the matter said.

Ampol in its Q3 unaudited financial results released Oct. 26 said the Lytton Refiner Margin for the third quarter ended Sept. 30 was $6.76/b, including the impacts of an alkylation unit turnaround and inspection, a significant improvement on the $5.95/b averaged over H1.

"The true impact of the refinery closures that happened earlier this year should be observed soon, as gasoline demand has started to pick up following the easing of COVID-19 restrictions," a Singapore-based trader said Dec. 13.

"It is expected that buying activity should increase in the near term, but with the cut in Chinese exports, it may not translate to more gasoline cargoes headed to Australia. That being said, the demand outlook is still quite optimistic," he added.

On the physical front, the FOB Singapore 92 RON gasoline crack against front month ICE Brent crude futures averaged $10.90/b in November, down $1.32/b from the October average of $12.22/b. The crack was assessed at $12.45/b at the Asian close Dec. 10, up 11.16% from the $11.20/b assessed at the Dec. 9 close, Platts data showed.