Europe toluene spot prices continue downward trend amid softer crude

LONDON (ICIS)–The European toluene spot market remains under pressure as the price correction started ten days ago continues on the back of decreasing crude oil values, sources said on Friday.

Crude has continued to retreat after last week’s financial market rout, when fears of rising inflation prompted a rather sharp correction.

The downturn was also connected to expectations of a higher US oil supply, which casts doubt over the net effect of OPEC output cuts.

The International Energy Agency (IEA) on Tuesday raised its oil demand growth forecast to 1.4m bbl/day, from 1.3m bbl/day previously.

The main takeaway from the revision, which was prompted by higher economic growth estimates from the International Monetary Fund (IMF) is that a fast-rising supply from US shale producers may overtake demand growth in 2018.

Additional price pressure could come from the refinery maintenance season over the coming weeks, leaving prices in negative territory.

Still, by mid-week, positive comments from Russia and Saudi Arabia as well as a lower-than-expected build in US crude oil inventories lifted oil prices.

The two largest crude producing countries, who participate in a global oil output cut agreement, expressed readiness to expand oil market coordination.

Meanwhile, the latest data from the US’ Energy Information Administration (EIA) revealed a smaller-than-expected rise in oil inventories.

Gasoline stocks were up, high than initial expectations, but this was offset by a drop in distillates inventories.

Similarly to last week, toluene traders were still looking for the right opportunities to send material to the US as the arbitrage window remains wide open, but it was not clear if any fixtures had been made.

Sources said that some volumes were already on their way to the US Gulf area, but others appeared to be hesitant, as they could not trust the level of US prices and how sustainable they could prove to be.

Timing seems to be key for traders to decide to commit and send vessels overseas, while it is a complicated and quite costly process that needs good preparation.

In the domestic toluene market, demand was reasonable but not overwhelming, with volumes mainly moving on a hand-to-mouth basis.

European toluene prices have come down by around €50/tonne over the past two weeks in distribution, and customers expect the price downtrend to continue.

Based on that expectation, they do not want to find themselves with very expensive material, which will be difficult to sell afterwards.

Eurobob gasoline values also recorded a significant price correction and were trading below $600/tonne throughout the week, while toluene premiums over the Eurobob number remained at $70-90/tonne.

In the distribution market, prices stood still at €600-610/tonne on a free carrier (FCA) basis, but some buyers insisted that they could find even lower quotes as material availability was ample.

Pictured: A refinery in Leuna, Germany
Source: Andreas Vitting/imageBROKER/REX/Shutterstock

Focus article by Vasiliki Parapouli