Lower European refined product prices having little impact on demand

16 May 2012 13:29  [Source: ICIS news]

LONDON (ICIS)--Softer prices resulting from lower Brent crude oil values have so far done little to rejuvenate interest in European refined products, sources said on Wednesday.

“Demand is weak and Europe is long, despite lower prices,” a naphtha buyer said.

“Demand is not that strong at all, even though prices are lower,” a trader in the German 50ppm gasoil/ ultra low sulphur diesel market said.

“Not at all,” a fuel oil trader replied when asked whether lower prices had had any impact on demand. “There’s an oversupply, people are not buying.”

The main factors contributing to poor demand across the product markets are fears for the economy and volatile crude oil prices.

“There’s too much uncertainty,” a gasoil cargo trader said. “People are not buying, they’re waiting to see what will happen, whether prices will fall lower still. Buying is only happening hand to mouth.”

Market-specific factors are exacerbating the paucity of buying interest

In the naphtha market, prices have slumped by $200/tonne (€158/tonne) since early April. Yet extremely low values for rival feedstock propane continue to ensure liquified petroleum gas (LPG) is the first choice for petrochemical buyers.

Furthermore, lower than expected US gasoline consumption has reduced requirements for blending components such as naphtha.

Finally, a weak, oversupplied Asian naphtha market is reducing arbitrage opportunities.

In the mid-distillate markets, where trades take place at premiums or discounts to ICE gasoil front month futures, a backwardated price structure continues to affect the purchase of material for sale at a later date.

“The backwardation [between June and July prices] is at $3/tonne,” the gasoil cargo trader said. “But it costs $7–8/tonne to store for a month. These lower prices are not enough, we need a contango to bring back demand.”

The current euro-dollar exchange rate is causing additional difficulties in the German 50ppm market.

“The weaker euro against the dollar is another problem,” the 50ppm trader said. “It’s wiping out some of the benefit of lower prices.”

At 11.39 GMT June Brent crude oil was trading at $111.41/bbl.

A month earlier, at 15.30 GMT on 16 April, June Brent was trading at $118.68/bbl.

$1 = €0.79

By: Jo Pitches
+44 208 652 3214

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