There was a time when light sweet crude was considered the best of the oil-grade bunch.
Easy to process and especially suitable for making gasoline — the fuel of choice for the world’s automobiles — it quickly became the global benchmark for oil prices everywhere.
The only problem for the industry was that there was never enough of it about. A fact which ended up providing the market with a hell of an incentive to find better ways of processing inferior crude types.
Which is exactly what happened next. Read more
Petroplus, Europe’s largest independent refiner by capacity, said it would file for insolvency after talks with its lenders failed, the FT reports. The announcement came a day after its UK refinery, Coryton, one of the largest in the UK and a key source of petrol for London and the south-east, stopped fuel deliveries and trading in the company’s shares in Switzerland, which have lost 99 per cent of their value since 2007, was suspended. European refiners have been hit hard by the economic slowdown which has weakened demand for transport fuel and squeezed profit margins, as well as chronic overcapacity in the industry. Petroplus wasforced to close down three of its refineries, while the two remaining – Coryton and Ingolstadt in Germany – have been running at reduced capacity. BP, which used to own Coryton and sold it to Petroplus in 2007 for $1.4bn, had earlier been in talks to throw the plant a lifeline by supplying it with crude and receiving refined products as payment. A BP spokesman said on Monday night that despite the situation at Coryton there were “no immediate supply issues across our retail network.”
European refiners have started to sever links with Iran, stopping spot purchases of crude ahead of a EU meeting later this month that could impose a full oil embargo on Tehran, the FT reports, citing unnamed industry executives and oil traders. The sources said that some refiners have either stopped or reduced new purchases of Iranian oil, although they continue to receive monthly oil supplies under earlier long-term agreements, or term contracts, that they cannot break without incurring penalties. “We continue to buy under term contracts but don’t deal with them any longer on spot transactions,” an official at a southern European refiner said. Other refining officials and several oil traders confirmed a reduction in spot deals. Traditionally, refiners buy two-thirds of their oil under term contracts and the rest on the spot market, although the precise split varies from company to company. In the event of an embargo, European refiners could declare force majeureand cancel their term contracts without penalty. David Greely, head of oil analysis at Goldman Sachs in New York, wrote in a note to clients that refiners were cutting back on Iranian purchases in response to new US sanctions and anticipation of an EU embargo. Meanwhile the WSJreports Japan’s finance minister told visiting US Treasury Secretary Timothy Geithner that his country will take steps to reduce its dependency on oil imports from Iran, in contrast to a position taken in talks with China a few days ago. “We want to take actions to further reduce our 10 per cent dependency as soon as possible in a planned manner,” Jun Azumi said.
The US has become a net exporter of fuel for the first time for nearly 20 years as drivers struggle with high petrol prices, according to the FT. Energy department data show the world’s largest oil consumer in February shipped out 54,000 barrels more petroleum products each day than it purchased on the global market. After a five-year decline in net imports, the US became a net exporter in late 2010, a trend analysts say is confirmed by the latest data. Allgov.com says rather than match demand for gasoline, oil companies are producing less for the US market and exporting more to other countries, while taking increased profits. Higher gas prices are the product of the nation’s refineries operating at about 81 per cent of their production capacity, Allgov.com adds, citing the Department of Energy.
BP’s new chief executive Bob Dudley on Tuesday surprised investors with plans to sell off half the company’s US refining capacity, including its Texas City refinery, reports the FT. The UK oil major on Tuesday also announced its first dividend payment since last year’s Gulf of Mexico spill but the news was overshadowed by a UK court decision to suspend BP’s proposed $16bn alliance with Russia’s Rosneft. The High Court in London granted an injunction to BP’s billionaire partners in its existing Russian venture, TNK-BP, until Feb 25. AAR, the holding company for the Russian partners, had argued BP’s alliance with Rosneft breached their shareholder agreement. Meanwhile, says TheSource, BP’s US disposals “make business sense” but in the short term are “surprisingly risky… for a company that is supposed to be on its best behaviour” in the US.
There’s been some interesting commentary on Friday regarding the ongoing problem of the widening WTI- Brent spread, which struck a record wide in like-for-like basis terms on Thursday.
First this from John Kemp at Reuters, on the mechanics of arbitrage and the substantial physical hurdles to closing out the current window. Read more
That’s the share price of Swiss oil refiner Petroplus holding on Monday. Read more
The French government signalled its determination to face down a prolonged protest movement against planned pension reforms when it requisitioned an oil refinery east of Paris, the FT reports. The facility had been blockaded for several days by strikers and demonstrators. The prefect, or head government official, in the Seine-et-Marne department east of the capital issued the requisition order late on Thursday night, prompting howls of protest from union representatives who said their right to strike was being impeded. Riot police moved into clear access to the Grandpuits refinery at 3am. The government does not intend to restart fuel production at Grandpuits – one of the 12 refineries in France which have all been shut down because of strikes and blockades – but wants to free up access to fuel depots on the site.
Royal Dutch Shell is in exclusive talks with Finnish fuel distributor St1 to sell the oil major’s Swedish refinery, the companies said on Monday, reports Reuters. If agreed, it would be the second European refinery deal for Shell in under a month, after the sale of its German refinery in late August. Both sites are relatively small plants that supply local markets. A Shell spokesman said the current talks included the Gothenburg refinery but gave no further details.
Could it be that nobody in the US wants gasoline anymore?
On Wednesday, John Kemp of Reuters observed how the combined stock of crude oil and refined products in commercial storage around the US had surged to 1.130bn barrels — the highest level since weekly records began in 1990. Read more
We didn’t say that..
Stephen Schork of the daily energy Schork report did. And here’s the graph, charting exactly that. Gasoline versus err, bimbos, by which he actually means entertainment spending in the US as a percentage of total consumption expenditure (the reference is to Snooki in case you’re really curious): Read more
Vienna-based energy consultants JBC Energy have turned our attention to an interesting story on Friday.
According to Reuters, Chinese refineries will be scaling back crude runs by a sizeable 5.6 per cent in March. Read more
Here’s a story that’s currently topping the minds of most energy traders in Europe, via Bloomberg:
Feb. 22 (Bloomberg) — Total SA unions called for a refinery strike to spread to all French plants and said fuel shortages could be imminent. “The strike will be intensified and extended to all refineries,” Charles Foulard, a representative of the Confederation Generale du Travail union, said late yesterday after talks with Total management on ending the six-day walkout broke down without an agreement. He warned the labor disruption will create fuel shortages in France this week. Read more
Weekly US energy inventory data release on Wednesday confirmed the unbelievable. US petroleum stocks rose in the week despite especially cold weather in the region during the period.
Meanwhile, Dennis Gartman of the Gartman Letter draws attention to the fact that aggregate inventory rose by 8.9m barrels, amongst the largest weekly aggregate increase ever. Read more
As FT Alphaville reported, a number of US refineries have had to mothball plants in the last month due to poor product margins. Ironically, this action may now be beginning to boost product cracks (the difference between crude and product prices and what determines refinery profitability).
As Stephen Schork reports on Thursday: Read more
Take out some refinery production in the US amidst weak global demand for distillates, and what happens? The RBOB gasoline crack — the US benchmark measure of the difference between the price of crude and that of gasoline — strengthens to the point it’s trading at par with heating oil.
As JBC Energy note on Tuesday that’s actually a highly unusual situation for the time of year. As they explain: Read more
Last Friday, what many in the energy market had long suspected might happen, happened.
Valero, the largest independent refiner in the US, was forced to close another 200,000-plus barrel-per-day refinery — this time, its Delaware City unit — due to a lack of demand. The closure comes just three months after Valero shuttered its 235,000 barrel-per-day Aruba refinery in the Caribbean. Rival Sunoco, meanwhile, shut down a 150,000 barrel per day facility at Eagle Point in New Jersey in October.
These closures reflect just how badly the sector is doing, a fact which has also shown through in share prices: Read more
The problems facing independent refiners refuse to go away, so it shouldn’t be a surprise that Europe’s largest independent refiner Petroplus last week agreed to sell its Antwerp refinery’s processing facilities in a bid to raise much needed cash.
This, of course, shows to what extent refiners are still being crushed by unfavourable product margins despite the recent rise in crude prices. Read more
Francisco Blanch, commodities strategist at Merrill Lynch, observes in a recent note to what extent the distillate overhang has now ironically become the primary driver of gasoline strength, and to what degree refineries are switching over to gasoline-max mode to try and make-up for the shortfall:
Refiners are switching out of heating oil into gasoline. Paradoxically, the strength in gasoline emanates from the weakness in the mid distillate complex. Refiners have been cutting crude runs to deal with imbalances in the petroleum product markets. They also started to switch crude distillation yields from heating oil to gasoline, reducing heating oil yields from a peak of 32% to 27% at present. We believe this trend could continue pushing US gasoline yields at least 4% higher this summer. In our view, this should help rebalance the product markets, pushing gasoline supply up over the next 3 months.
Former commodity mega-bulls Goldman Sachs are expecting markets to continue to pull back from current levels in the near term as “fundamentals are not yet stable enough to support higher prices”, according to their latest Commodity Watch.
In oil markets, the Goldman analysts argue, this is largely down to the substantial US total petroleum inventories that have been building up counter-seasonally in the last few weeks. Read more