Europe refinery margins 'bad', naphtha market expects fresh run cuts

11 October 2013 15:01  [Source: ICIS news]

LONDON (ICIS)--A sharp fall in refining margins was lending support to the idea of further run cuts across refineries in northwest Europe, which could result in reduced naphtha supply, industry sources said on Friday.

Gasoline and middle distillates products from refineries are bringing in less profit as product price increases do not match rising upstream crude oil costs, and refiners are exposed to pressure from slow demand and, as in the case of diesel, competition from imports.

The gasoline crack spread to ICE Brent crude oil futures stood low at $2.25/bbl on Thursday evening, while the naphtha crack spread was negative at -$7.50/bbl on Friday morning.

A crack spread is the price difference between a crude product and upstream crude oil values, calculated in US dollars per barrel.

A fall in refining margins, especially those of gasoline, normally leads to a cutback in production at refineries.

Any production cutbacks would be on top of the already reduced run rates in European refineries due to the autumn maintenance season, traders said.

"Refinery margins are very bad," a naphtha buyer said. Naphtha cargoes were being bought up by banks because of the support created by the possibility of additional refinery run cuts, a naphtha trader said.

"Think banks bought a lot as refinery margins are low but most naphtha traders sold [cargoes]," the trader said.

Euroilstock data published on Wednesday revealed crude intake in the 15 EU countries included in the survey and in Norway fell by 3.3% to 9.855 million barrels per day (bpd) in September.

September has traditionally marked the beginning of the autumn refinery maintenance season. Despite the reduced crude intake, naphtha stocks remained unchanged from August to September, Euroilstock data revealed.

($1 = €0.74)

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By: Cuckoo James
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