Fears of supply disruption drive Europe distillate premiums upwards

30 September 2011 16:36  [Source: ICIS news]

LONDON (ICIS)--The fire at Shell’s refinery in Singapore, refinery run cuts across Europe and the threat of strikes at French refineries have driven premiums for European distillates upwards, sources said on Friday.

The ultra-low sulphur diesel (ULSD) market has been particularly affected due to fears that exports of the product from Singapore will be hampered by the shutdown of Shell’s refinery following a fire that was extinguished late on Thursday.

Poor refinery margins have resulted in recent run cuts across Europe, although the extent to which operating rates have been reduced is unknown.

LyondellBasell was forced to shut its refinery and petrochemicals site at Berre L’Etang in France after workers at the facility on Tuesday voted to strike. There is still uncertainty in the market and fears that the industrial action may spread to other refineries.

“Premiums are going higher, the market is getting tighter,” a trader in the ULSD barge market said. “The Singapore fire, possible French strikes…. people are waiting to see what will happen.”

By mid-afternoon on Friday, ULSD barge premiums over October ICE gasoil had climbed to around $40/tonne, up from $32/tonne a week earlier and $21/tonne two weeks ago.

The ULSD cargo market is also affected, with premiums over October ICE gasoil hitting $45/tonne by mid-afternoon on Friday, compared with $32-34/tonne a week earlier.

A producer said: “Premiums are up. People are buying anyway for now, but there’s still concern about the market tightening and premiums rising higher. There’s a lot of uncertainty.”

The German 50ppm gasoil barge market encountered similar effects. By early Friday afternoon premiums over ICE gasoil had reached $35/tonne, up from $23-27/tonne the previous week.

Sources say that so far this has not deterred buyers, who need to replenish stocks before the winter months. However, it is thought that premiums could creep up further still.

“Lower ICE gasoil figures have helped absorb some of the increase in premiums, but people could stop buying if they [premiums] keep going up,” a trader in the 50ppm market said.

Only the fuel oil market appears relatively unscathed, with supply being described by a trader as normal.

At 14.30 GMT, October ICE gasoil was trading at $884/tonne, down $14.25/tonne from the previous close.

By: Jo Pitches
+44 208 652 3214

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