The International Energy Agency Tuesday said global gasoline markets could be undergoing a "structural shift" toward surplus inventories and lower refining margins.
In its widely watched monthly oil report, the energy watchdog for the Organization for Economic Cooperation and Development said weaker U.S. and European demand, combined with increased U.S. ethanol blending could tip the U.S. gasoline market into surplus.
"The Atlantic basin is expected to undergo an easing of gasoline supply tightness, starting in 2007/2008," and would impact other markets worldwide, the IEA said.
The agency highlighted weakness in U.S. gasoline crack spreads - which have declined 90% to $3 a barrel from $30 a barrel a year ago - as a sign that supply balances could move from tight to "saturated".
"U.S. refineries have emerged from a traumatic first quarter. The bedrock of U.S. refining profitability, the gasoline crack, has weakened in recent months to levels not seen since 1999, when crude oil was $12 a barrel," the IEA said.
Cracks have been driven lower by a downturn in U.S. demand by around 1% as consumers are squeezed by retail gasoline prices in excess of $3.60 a gallon.
The gasoline pool has also been plumped by an incremental 130,000 barrels a day of U.S. ethanol production in the last 12 months, a cheap source of additional volumes for refiners.
Also, "European crude runs, although weak compared with 2007 levels, have not compensated for the 4% decline seen in European gasoline demand so far this year, suggesting there is the potential for European refineries to have increased exports to the U.S.," the agency said.
Alternative markets for European gasoline - Nigeria and Iran - have also taken steps to reduce their import needs, which could put further pressure on Europe's gasoline refiners.
"The downward pressure on gasoline cracks will fluctuate based on a number of factors including; voluntary run cuts, unplanned refinery outages and the emergence of other markets, e.g. China, as net gasoline importers," the IEA said.
Meanwhile, the IEA forecast global refinery runs would reach 73.3 million barrels a day in May, versus 72.8 million barrels a day in April.
April global refinery crude throughput stood at a seasonal trough, as output was stifled by poor economics and refinery maintenance.
Looking ahead, the agency predicts second quarter crude runs to average 73.5 million barrels a day, a downward revision of 0.2 million barrels on month, due to weaker estimated runs in the OECD Pacific region.
"Runs should rise through the second quarter to meet driving season demand, however recent improvements in Atlantic Basin gasoline supply are expected to keep margins volatile," the agency said.