Europe Product Swaps: Demand Down, Supplies Up

Posted by Joseph Keefe December 7, 2015

European oil product swaps for December weakened across the board in the week to Monday as supplies of diesel have risen sharply while demand for gasoline and naphtha enters a seasonal lull.

Refining margins are largely expected to weaken over the coming weeks due to weaker regional and global demand and as supplies rise due to high refinery output.

Gasoline refining cracks have been on a declining trajectory in recent days after supporting margins in recent weeks on the back of unusually strong demand from Asia and West Africa.

"The light ends have fallen steadily heading deeper into winter and we expect the prices to fall a little bit more," a trader said.

"But with year end approaching we will see refiners push to maximum to hold more cash flow on sales of products."

The diesel market has been under heavy pressure in recent days due to a sharp rise in imports from the East, the U.S. Gulf Coast and Russia as well as strong regional production.

The discount of prompt Low Sulphur Gasoil futures to the January contract, in what is known as contango, deepened over the past week to around $7 a tonne, pointing to weaker demand and higher supplies.

With storage inventories rising to near maximum capacity, traders have been weighing storing product on tankers as a last resort.

MIDDLE DISTILLATES
* At 1225 GMT the December ICE Low Sulphur (LS) Gasoil futures contract was $389 a tonne, down from $422.25 a tonne last week.

* The December contract was trading at a discount of $7 a tonne to the January contract <LGO-1=R> compared with a discount of $6 a tonne last week.

* The November diesel crack <LGO-LCO1=R> was trading at $10.60 a barrel, down from $12 a barrel a week ago.

* The December diesel barge differential swap was trading at a discount to ICE LS gasoil futures of about $6.40 a tonne fob ARA, down from around $5.80 a tonne a week ago. The January swap was quoted at a discount of around $5 a tonne, down from $4.40 a tonne.

* The December diesel cargo differential swap was at a premium of $1.80 a tonne cif NWE, compared with $2 a tonne last week, while the January swap was also quoted at $2.30 a tonne, up from $2 a tonne a week ago.

* The December gasoil barge differential swap was trading at a discount to November ICE LS gasoil futures of about $10.25 a tonne fob ARA, compared with a discount of $19.30 a tonne. The January swap was at around $10.75 a tonne, down from $18.50 a tonne.

JET FUEL
* The December jet fuel cargo differential swap was trading at a premium to diesel futures of about $29 a tonne cif NWE, versus $11.60 a tonne a week ago. The January differential was trading at roughly $27.70 a tonne, up from $11.40 a tonne.

FUEL OIL
* The December high-sulphur fuel oil (HSFO) cargo swap was trading at around $160 a tonne cif NWE, versus around $188 a tonne a week earlier.

* The "hilo", the spread between low-sulphur fuel oil cargoes (LSFO) and high-sulphur fuel oil barges, was at a premium of around $1.46 a tonne for December, compared with $7 a tonne last week.

GASOLINE
* The December Eurobob gasoline barge swap was trading at $430 a tonne fob ARA up from around $467.60 a tonne last Monday. The January swap was trading at around $438 a tonne, down from $469 a tonne.

* The December crack swap was trading at around $8.36 a barrel, down from around $9.90 a barrel. The January crack was quoted at around $8.60 a barrel, down from $9.20 a barrel.

NAPHTHA
* The December naphtha cargo swap was trading at $397 a tonne cif NWE, down from around $433 a tonne a week ago. The January swap was at around $400 a tonne, down from $431 a tonne.

* The December naphtha crack was trading at a premium of $1.80 a barrel, compared with about $3 a barrel.