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Europe Product Swaps-Gasoline and naphtha firm on tight supplies
July 2, 2012 / 5:26 PM / in 5 years

Europe Product Swaps-Gasoline and naphtha firm on tight supplies

LONDON, July 2 (Reuters) - Gasoline and naphtha swap prices
rose in the front months following a swift reversal on crude
futures last week and a tight European gasoline market. 
    Regional refiners are prioritizing production of gasoline
grades for overseas instead of the standard Eurobob, creating a
tight prompt market. 
    In turn, naphtha prices have recovered due to increased
demand for gasoline blending in order to compensate for the
shortage.
    Outright naphtha swap prices flipped into backwardation as a
result, while cracks gained $3 a barrel on the week.
    "The market was tight for delivery by the 10th, which indeed
caused the flip from contango to backwardation," one broker
said. 
    Distillate swaps were buoyed by open arbitrage opportunities
to the Middle East and South America, one market participant
said, coupled with on-going supply problems in ARA.
    Top oil exporter Saudi Arabia has been stepping up fuel
imports to meet peak summer demand in the Middle East. Traders
estimate state oil giant Saudi Aramco bought about 400,000 to
500,000 tonnes for July, up from an estimated 350,000 tonnes in
June. 
    A glitch last week at a new diesel making unit at Shell's
 412,000 barrel per day Pernis refinery in the
Netherlands, Europe's largest, is causing delays because of
problems linked to the quality of its output.
    It was not clear how long the delays would
last. 
    However, it is difficult to anticipate how the market will
evolve, said a trader.
    "Weakness in crude is supporting the cracks," the trader
said, "For the time being there is strength, for next 10-15
days, then we will see whether runs increase if new demand
comes."
    A sharp fall in crude oil prices has gifted European oil
refineries a surprise profits surge in June, briefly bucking
longer term decline, in a timely bonus for traders Vitol and
Gunvor who have bought plants. 
   The strong margins, however, are expected to be short lived
as refined fuel prices adjust lower, helped by refiners boosting
output to cash in on the windfall, and Europe's dwindling oil
demand reasserts itself. 
    
    GASOLINE
    * July gasoline barge swaps were trading at $920.00 a tonne
fob ARA on Monday, up from at $864.16 a tonne last week. The
August swap was quoted at $884.50 a tonne up from $835.30 a
tonne last week.
    * The backwardated structure of the curve extended until the
end of the year. The backwardation between July and August
widened to $35.50 a tonne from $28.86 a tonne last week.
    * The July crack was trading at around $14.77 a barrel, up
$2 a barrel from last week at $12.60 a barrel. The August crack
was remained weaker at $10.57 a barrel up from $9 a barrel last
Monday.
   
    NAPHTHA
    * July naphtha swaps rose sharply on the week to $760 a
tonne cif NWE, up from $676.44 a tonne cif NWE last Monday.
August swaps were at $685.58 a tonne cif NWE, down from $748 a
tonne last week.
    * The structure of the curve reversed into backwardation in
the two front months from a $10 a tonne contango last week. 
    * The July naphtha crack swap firmed to minus $11.00 a
barrel up $3 a barrel from last Monday at minus $14.29. The
August crack swap was at minus $11.30 a barrel, up from minus
$13.47 a barrel last week.
    
    DISTILLATES
    * Front month ICE gasoil futures were trading at
$848.25 a tonne at 1607 GMT on Monday, sharply up from $808.00
at the close a week earlier.
    * Backwardation at the front of the curve widened, with the
July/August spread LGO-1=R at $5.50 a tonne compared with
$4.75 a tonne last week at around the same time.
    * July gasoil barge swaps rose to around $2 a tonne, up from
around $0.50 a tonne last Monday.
    * August gasoil barges were firmed to around $1.80 up from
around $1 a tonne last week. The third quarter was at around
$1.50 a tonne.
    * July diesel barge swaps strengthened on the week at around
$24.50 a tonne, compared with $16.25 a tonne last Monday. August
barge swaps were at $20.50 a tonne. 
    * Further along the curve, third and fourth quarter barge
swaps were at parity at around $20/22 a tonne, while the first
quarter of 2013 was bid at $17 a tonne.
    * Levels rose considerably owing to on-going loading issues
at Shell's 412,000 barrel per day Pernis refinery, one trader
said, which has made supplies reasonably tight.
    * A glitch at the new diesel making unit led to the
production of off-specification diesel. 
       
   JET FUEL
    * July jet fuel swaps firmed slightly to $58.50/59.50, up
from around $57.25 a tonne last week, while the July/August
spread was widened slightly at around $3.50 a tonne.
    * August jet fuel swaps were at $62/63 a tonne, up from $61
a tonne last week. September was at $64.50/65.50 a tonne. 
    * The fourth quarter was at $67.50/68.50 a tonne, up from
$66.50 a tonne.
        
    FUEL OIL  
    * The spread between high and low sulphur fuel oil, or hilo,
reversed the trend over the last two weeks and rose sharply
compared with Monday. 
    * Levels strengthened on the back of gains in the crude oil
futures market as well as a weakening physical high sulphur fuel
oil market, one trader said, with plentiful supplies coming out
of Russia. 
    * The July hilo was offered at $38 a tonne, indicating an
over $10 a tonne rise from last week at $26 a tonne.
    * The curve held onto the flat structure established last
week, with August also at around $38 a tonne, up around $26 a
tonne last week.

 (Reporting by Julia Payne, additional reporting by Jessica
Donati; editing by William Hardy)

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