* Refiners tweak crude oil feedstocks to favour gasoline
* Gasoline refining margins shine as diesel languishes
* Strong demand for gasoline set to continue in 2016
By Ron Bousso
LONDON, Jan 12 (Reuters) - After years of building up dieselproduction, European oil refiners are using every trick in thebook to maximize gasoline output to meet unabated global demandas the two fuels stage a sharp reversal of fortune.
Many operators on the continent, including Total,BP, Royal Dutch Shell and ExxonMobil,have invested hundreds of millions of dollars over the pastdecade to increase production of diesel, the road fuel of choicein the region, while seeking to lower gasoline output, seen as amere "by-product" of that process until recently.
But today the world faces a growing excess of diesel andspectacular demand in Asia and the United States for gasolineand naphtha, a feedstock for plastic manufacturing.
While oil refineries can not maintain high output ofgasoline without also ramping up diesel production, they are nowtaking every possible step to tweak production in order tofavour gasoline and naphtha.
One such step is using as feedstock lighter crude oil gradeswith higher yields of gasoline and naphtha. For example, lightNigerian crude prices have outperformed heavier grades
Some refineries have also opted to lower operating levels,or runs, in diesel producing units known as hydrocrackers.
In recent weeks, as naphtha cracks surged to record levels,some refiners have tweaked the distillation boiling temperature,or "cut point", in order to favour naphtha over kerosene and jetfuel, according to refinery sources and traders.
The results are already showing -- yields of middledistillates, which include gasoil and diesel, dropped to around50 percent in December, date from industry monitor Euroilstockshowed, the lowest in around 6 years.
"We expect European refiners to do all sorts of things...They are already doing this as the market is sending such strongsignals. We will see fractions pulled out of the diesel pool andmoved into jet and we will see naphtha fractions taken out ofjet and moved into light ends," according to Robert Campbell,head of oil products research at consultancy Energy Aspects.
Benchmark European gasoline refining margins, or cracks,rose to around $15 a barrel this week -- nearly three timeshigher than a year ago and ten times above 2013 levels -- asdemand in China and Asia for the road fuel remains unabated.
Diesel cracks, on the other hand, have languished due torising global production, slower demand and a mild winter thathas filled storage tanks to the brim.
The small changes in refining slates are having anincremental effect. A 1 percent swing in yields could lowerEurope's diesel production by more than 250,000 tonnes permonth, according to Campbell.
"It is not enough by itself to right the market but wouldhelp a little bit. A similar development in the U.S. Gulf Coastwould shave another 150,000-200,000 tonnes off the balance andthat starts to have a pretty significant effect on the overallnumber of cargoes being shown."
The global shortage in gasoline is expected to continue thisyear too.
"With new refinery additions less tailored towards lightproducts and increasing demand for petrol in Asia, it appearsincreasingly likely that the market could find itself short ofgasoline again as it did over the summer of 2015," Barclays saidin a note.
In the near term, the sharp decline in crude oil prices dueto a persistent supply glut is likely to support refiningmargins but Energy Aspect's Campbell expects "modest" cuts inrefining rates in both Europe and the United States.
Once crude supplies tighten towards the end of the year,"that support will go away and margins will really struggle," hesaid.
(Additional reporting by Libby George and Ahmad Ghaddar,editing by William Hardy)
