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Europe: Delta Virus Yet to Hit Buying as Markets Open Up

Copyright © 2021 Energy Intelligence Group
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European oil demand is rising even as Delta variant infections accelerate. Most European governments are keen to lift Covid-19 restrictions, some of which have been in place for 18 months, even as case rates rise, and this is releasing huge pent-up demand for travel. Jet fuel demand is the latest to revive after the EU launched its Digital Covid Pass in July. The UK lifted quarantine requirements for fully vaccinated travelers from most of Europe and some long-haul destinations (OMI Jul.19'21). Aircraft fueling companies suggest European jet fuel purchases were back to 50%-55% of pre-pandemic levels in the first week of August, up from 35%-37% in the first week of July. It might not get higher for now since most flights in Europe are still short haul, and the US is still not welcoming European travelers (OMI Jun.16'21). Jet traders say airline buying is still nowhere near enough to drain bloated storage tanks and handle rising imports. Jet tanks in Amsterdam-Rotterdam-Antwerp (ARA) are close to an all-time high and 40% above pre-Covid-19 levels, according to Insights Global. Spot market trade is getting hampered by a rise in tanker refusals. Oil majors who are in charge of tanker vetting are failing an increasing number of ships. Some rejections relate to the age of ship inspection reports that were not renewed during the pandemic. Other reasons border on the comical: a ship’s discharge pumps were too loud, for example, leading to accusations that the system is being exploited for commercial reasons. Motor fuel demand is firming as Europe opens up, commuters avoid public transport, and many holidaymakers opt for road trips over air travel. Gasoline margins are at their highest in two years as empty tanks force traders to live hand-to-mouth from low-ball local refinery production. ARA gasoline stocks hit a five-year low early August, with current tanks barely half of summer levels in both 2019 and 2020. Exports to the US are averaging 170,000 metric tons per week (related). Ultra-low-sulfur diesel (ULSD) margins remain under pressure as European traders sit on ample stocks and struggle to place imports. East of Suez suppliers have easily made up for the recent shortfall in Russian ULSD volumes. But buying is strong in the UK. ULSD sales were above pre-pandemic levels in June, confounding what had been a shrinking fuel market. Tax receipts show UK motorists buying an estimated 2.1 million tons of diesel in June, 58% more than last year, when the UK was still in a partial lockdown, and 4% higher than volumes sold in June 2019. Naphtha is also riding high as gasoline blenders and petrochemical producers compete for limited supplies. Traders blame a closed arbitrage from the US for a shortage of liquefied petroleum gas in Europe, which has forced petchem firms to switch to naphtha feedstock. Gasoline blenders are desperate to beef up meager refinery production in Europe. Refinery runs in key countries are 9% below 2019 levels in July. The price gap between 0.5% and 3.5% sulfur fuel oil has narrowed to its lowest in three months as Asia buys less low-sulfur bunkers with the pandemic flaring up again (related). High-sulfur fuel oil is in lower supply as refiners have adjusted to cleaner marine fuels, while it also benefited from strong Mideast utility demand. PRICES Monthly Prices Recent Week Prices Aug 2- Aug 9- May Jun Jul Aug 6 Aug 13 NORTHWEST EUROPE ($/metric ton) Naphtha 593.39 630.21 662.74 663.20 675.40 Prem. Unleaded Gasoline 656.19 686.74 720.96 727.00 709.00 Eurobob 650.71 682.30 715.47 726.62 709.32 Jet Kerosene 574.37 610.59 622.42 610.55 601.15 0.1% Gasoil 544.76 581.22 588.66 572.35 565.90 0.5% Fuel Oil 481.29 512.23 523.18 509.80 493.00 3.5% Fuel Oil 363.57 390.78 393.61 381.20 363.70 f.o.b. barges. * Eurobob, 10ppm premium ICE GASOIL FUTURES ($/metric ton) Front-Month Contract 555.39 591.76 599.02 586.95 575.00 4 Weeks Ahead(a) +1.94 +1.81 +0.85 +1.05 +2.75 8 Weeks Ahead(a) +3.15 +3.02 +1.60 +1.85 +3.35 12 Weeks Ahead(a) +4.18 +3.82 +0.30 -0.30 +1.55 (a)Differential versus current spot.

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