European refiners max diesel despite four year-high jet margins
Friday, 07 September 2012 | 11:00
European refiners are maximizing production of 10 ppm sulfur diesel despite margins for producing jet fuel being at an almost four year-high, sources said Thursday.
The FOB Rotterdam jet fuel barge crack - the value of jet fuel versus crude - soared to an almost four year-high Tuesday, assessed at $23.76/b. Although it shed $0.28/b Wednesday the crack is still very strong, having gained more than $5/b in the past month alone, data shows. The equivalent diesel crack was assessed at $23.14/b below jet Wednesday. The jet crack has soared as FOB Rotterdam barge premiums have increased by more than $20/mt over the past two weeks alone, assessed at a fourteen month high of $96.50/mt Wednesday.
The recent rise in FOB Rotterdam jet fuel barge premiums, prompted by tight supply in the Amsterdam-Rotterdam-Antwerp trading hub due to refinery maintenance periods, has caused margins for producing the product to soar.
Jet fuel market sources, however, said that despite strong margins for producing the product there is still little incentive for them to switch from maximizing diesel because demand for jet, particularly in the Mediterranean, is expected to wane in the coming months.
"I expect jet to weaken a little bit in the next few weeks. Diesel is more strong in terms of demand over the next few months and I think the [jet] crack will go down," a refining source said. "I see demand [for jet] decreasing and I see more cargoes being offered from Egypt and Libya."
Both Libya's Ras Lanuf refinery and Egypt's Midor facility have issued tenders offering jet fuel cargoes in the past week.
The strength in the ultra low sulfur diesel market is also a key factor, sources said, in the decision to continue maximizing production. Despite thin end consumer demand, a combination of factors has seen a resurgence in trading activity in the Amsterdam-Rotterdam-Antwerp ULSD barge market in recent days.
One of the main factors driving the rise in trading activity is the imminent changeover from summer to intermediate specification that is encouraging some traders to clear tanks of material.
The FOB barge premium was assessed up $1.50/mt at $35.75/mt Wednesday, which was $4.75/mt firmer since Monday.
Additionally, because of the low tank volumes due to high outright prices for the product and a lack of contango structure on the ICE gasoil futures contract to encourage storage, the diesel market has seen participants operating on a hand-to-mouth basis and requiring last minute buying to meet shorts.
Also, with the refinery maintenance season looming there has been some intensified interest over provision of material to cover this period.
"There is a decent fight going on now. We are in a low stock environment. We are going into the specification change period mid-month so the summer has to be sold and inter is not so easy to get from local supply," a diesel trader said. "As we have a decent sized maintenance season in ARA a fair amount of local supply will be out."
Another factor was that barge availability was improving as river Rhine water levels have increased following increased rainfall in the region.
Middle distillate barges have now been loading nearer to full capacity meaning fewer barges are now required to load the same volume of product.
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