As said Oil price decrease (approx -3$/bbl on levels or ~6% (-3-8% in relevant equities) is mainly driven by macros and not by fundamentals since the worst case of 100-150.000 bpd estimated demand drop will not mean much for the global profile. BUT the contradiction is that North Sea companies EBIT is much better now due to the dollar pound spread!! since pricing is in $, so EVEN fundamentals are getting better in terms of operational margin THUS how this drop is explained? One explanation can be the Forex$/Oil price negative correlation (which lately doesnot hold as much as in the past), such as the appreciate of $ drove the relevant drop on the forward curve since the forward has more a financial impact of hedging and determined by interest rate among other macros. Indeed the time spread margin have been tighten and this might offer an explanation. Another contradiction of brexit crisis to mention is the pound/euro depreciation since pound’s fundamentals are all best in terms of inflation, unemployment, growth… this euro/pound will trigger intercontinental gas pipeline trading and from Monday will see the effects on gas/forex spread.
Monthly Archives: June 2016
Η ανάλυση του ΙΕΑ Μαρτιος 2016 (still in progress) έχει πραγματικό ενδιαφέρον σε σχέση με τα περι έλλειψης μαζούτ. Είναι σημαντική η παγκόσμια πτώση στη ζήτηση Fuel Oil (συνολικά χαμηλού-ψηλού θείου κλπ) όπως και σε ετήσια βάση στην Ευρώπη (0,92 from’14 to 0,87 mbd ‘15) και πραγματικά δύσκολο να κατανοήσει κανείς που υπάρχει έλλειψη όταν παράλληλα με την πτώση ζήτησης υπάρχει και υπερπροσφορά που οδηγεί στο κλείσιμο διυλιστηρίων λόγω overcapacity (πολλά μάλιστα δεν έχουν μεταστραφεί στα λευκά και ακόμα παράγουν μαζούτ). Επίσης αυτό το 40% στην πτώση των τιμών του fuel oil χαμηλού θείου στην Ευρώπη (τελευταίος πίνακας) γιατί δεν την είδαμε στην Ελλάδα? Συγκεκριμένα βαση πρόσφατης μελέτης του ΕΙΑ (on going):
Current low prices in global diesel markets can be attributed to slow demand growth, high inventories as a result of reduced winter heating demand in the United States and Europe, and from new or expanded refinery capacity in theMiddle East designed to maximize diesel production. Particularly relevant to the Asia-Pacific market is the emergence of China as a growing net exporter of diesel. China was a key driver of diesel demand growth over the past several decades but is now a net diesel exporter, contributing to the growing oversupply in global diesel markets.
The stellar year of 2015, when European refiners contributed a third of the global throughput increase, has not swayed many observers from the view that in the long-run, European refining will be pulled down by strong gravitational forces of structural demand decline and competition from refiners in other regions. In March this year the CEO of Spanish refiner CEPSA proposed at a public forum that the EU should follow the example of Japan’s Ministry of Economy, Trade and Industry, and set specific targets for refinery closures. There will be refinery shutdowns, either in a planned manner, or, more spontaneously. His idea was that it would be easier if the closures were specifically mandated. The EU in response distanced its institutions from mandating or coordinating refining industry reorganisation, so it will be up to the invisible hand of the market to conduct the process.
A recent paper by the Dutch think-tank Clingendael International Energy Programme attempted to identify refineries in North-West Europe that have a more assured future versus refineries that are the most likely candidates to close. The authors analysed all refineries located in the five principal countries of the NWE trading hub: Netherlands, Belgium, Germany, France and the UK. If a refinery did not fall into one of the four ‘must-run’ categories (captive demand, petrochemical integration, downstream integration and surplus coking capacity), it was identified as exposed. Of the 34 refineries, only 12 qualified for the ‘must-run’ status. Thus, the paper concludes that half of the close to 7 mb/d of capacity in the region is a candidate for restructuring in the long term. The differences by country are even more striking. Germany’s refining sector is the most protected, with only a third of the capacity in the danger zone, while all of France’s and all but one UK refinery are exposed. The authors also considered the barriers to exit, such as the refinery site’s environmental clean-up costs or political intervention driven by public protests at job losses. This would add back nine refineries, with a total of 1.5 mb/d capacity, to the must-run list, reducing the hypothesised NWE capacity closures to about 35% of current capacity.
In the business of refinery closures, the first mover is at a disadvantage. Margins, even if temporarily, tend to improve, but it is the companies that did not part with their unwanted capacity that benefit most. This variation of the prisoners dilemma adds further complication to refinery industry rationalisation in the free markets.