Join +750K new investors every month who copy stock picks from billionaire's portfoliosSign Up Free

Graphic - U.S. shipping sanctions deal European refiners an unexpected boost

Published 16/10/2019, 16:51
© Reuters.  Graphic - U.S. shipping sanctions deal European refiners an unexpected boost
CL
-
CPF
-

By Ahmad Ghaddar, Ron Bousso and Noah Browning

LONDON (Reuters) - U.S. sanctions imposed last month on subsidiaries of vast Chinese shipping fleet Cosco have given an unexpected boost to European refiners as less crude oil from the North Sea and West Africa heads east, traders and analysts said.

Freight rates have soared as oil producers scramble for non-blacklisted vessels, discouraging longer-distance voyages.

Complex refining margins for advanced facilities capable of extracting even more valuable products like diesel and gasoline, have been especially strong in Europe, industry sources said.

GRAPHIC: Complex Refinery Margins - https://fingfx.thomsonreuters.com/gfx/ce/7/6940/6922/JBCComplexMargins.png

The U.S. sanctions have had a particularly heavy impact on the cost of hiring very large crude carriers (VLCCs), those most commonly used on long-haul journeys.

"As a result, refiners and traders, will look to buy regional grades, ideally with dedicated vessels," a report by the Oxford Institute for Energy Studies said.

Smaller tankers such as the Aframax, used more commonly within the Atlantic basin, offer a relatively better deal.

"High freight rates for crude are keeping crude in the Atlantic basin relatively cheap," a crude trader said.

Freight rates for shipping West African oil to Europe have eased, from world scale 275 to 230 according to a European importer, making it a more attractive destination than markets in the Americas and Asia.

Spanish energy company Cepsa (GQ:CPF) snapped up at least four cargoes of light sweet Nigerian oil last week, traders said.

However, a showdown between buyers and sellers over shouldering the higher shipping costs has yet to be resolved.

"I would argue that the burden should be shared, with buyers not expecting sellers to eat all the cost and buyers accepting a hit on refining margins," a seller of Nigerian crude said.

Refineries like Britain's Grangemouth plant, which receive their crude via pipeline from the North Sea, are best placed to profit as they can bypass shipping altogether.

GASOLINE, NEW SHIPPING FUELS

European gasoline margins would normally ease at the end of the U.S. summer driving season as exports dip. But attacks last month on two major oil facilities in Saudi Arabia led to a surge in exports from Europe to the Mideast Gulf, helping keep margins unseasonably buoyant..

GRAPHIC: European Light Distillate Cracks - https://fingfx.thomsonreuters.com/gfx/editorcharts/OIL-PRODUCTS/0H001QXD78XS/eikon.png

Also boosting refiners is rising demand for distillates in preparation for the International Maritime Organization's new maritime fuel rules.GRAPHIC: European Middle and Heavy Distillate Cracks - https://fingfx.thomsonreuters.com/gfx/editorcharts/OIL-PRODUCTS/0H001QXD68XP/eikon.png

"It's very bullish for products going into next year," Vitol chief executive Russell Hardy said at an industry event last week.

"The market is going to be called upon to supply sufficient gasoil and low-sulphur fuel oil. On the flip side, there's 2 million barrels per day of high-sulphur fuel oil that needs a place to go," he added.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.