SEB’s oil market report: Gasoline boosting refinery economics

8/2/2019 SEBs oil market report: Gasoline boosting refinery economics

1/12

Oil Market ReportGasoline boosting refinery economics

3 APRIL 2012


2/12

2

SEB Oil Market Report

Crude oil market

Brent crude is likely to face several headwinds over thenext few months. Weak seasonal demand this springtogether with fading hopes of a rapid globalmacroeconomic recovery may potentially interrupt thegenerally bullish momentum supporting the Brentcrude rally so far this year. Nevertheless, we believeany short term weakness will merely mask a probablegradual tightening of the oil market as July 1approaches when sanctions against Iran fully impact.Anecdotal evidence of widespread hoarding of oil bygovernments worldwide due to concerns regarding thesituation in Iran is already offsetting some seasonalweakness. Iranian oil exports will be restricted inseveral ways, not only to Europe. In addition to far-reaching US sanctions, European insurance companieswill be prevented from insuring shipments of Iranian oilfrom July 1, a restriction likely to impact that countrysoil shipments worldwide with Europe a global centrefor shipping insurance. In conclusion, while we couldsee oil prices weaken in coming weeks, they willsubsequently increase due to the projected full impactof Iranian sanctions and growing seasonal oil demandworldwide.

As supplies of Iranian oil decrease they must be replaced byincreased supply from Saudi Arabia, oil released from the

Strategic Petroleum Reserves (SPR), and drawdowns fromcommercial stocks. Politicians in the US, UK and Francehave already provided verbal confirmation of future SPR

releases as Iranian oil supplies are restricted.

Saudi Arabia is making various preparations. Drilling activitystands at a post-2007 high while plans have already been

announced to restart production at its Dammam field,mothballed in 1980. It is also filling its private oil storagefacilities worldwide and has contracted 11 VLCCs to

transport oil or provide temporary storage. In addition, itsleaders have sought to reassure markets by announcing it

has spare capacity totalling 2.5 mb/d available if required.

Despite question marks over the hoped for global recovery,

and particularly the European outlook, the worldwideeconomy overall still appears set on a gradual upturn over

the next two years. Ab initio, European crude oil stocks arearound 15-year lows and global stocks below their 5-yearaverage; US oil demand is cyclically low; while the situation

will be inevitably compounded by the full impact of theupcoming Iranian oil embargo. In addition, we estimate

OPEC reserve capacity at 2.5-3.0 mb/d, a very low level forthe start of a cyclical upturn, albeit a weak one. Inconclusion, we believe both current and prospective

macroeconomic and oil market conditions are likely toremain highly supportive for oil prices over the next few

years.

Crude oil priceCrude oil priceCrude oil priceCrude oil price(NYMEX/ICE, $/b, front month, daily closing)

65

70

75

80

85

90

95

100

105

110

115120

125

130

jan-1

0

feb

-10

mar-

10

apr-

10

ma

j-10

jun-1

0

jul-10

aug-1

0

sep-1

0

okt-10

nov-1

0

dec-1

0

jan-1

1

feb

-11

mar-

11

apr-

11

ma

j-11

jun-1

1

jul-11

aug-1

1

sep-1

1

okt-11

nov-1

1

dec-1

1

jan-1

2

feb

-12

mar-

12

NYMEXWTI

ICE Brent

IEA gIEA gIEA gIEA global crude oil demand estimateslobal crude oil demand estimateslobal crude oil demand estimateslobal crude oil demand estimates(mb/d)

79

80

81

82

83

84

85

86

87

88

89

90

91

92

jan-0

9

apr-

09

jul-09

okt-09

jan-1

0

apr-

10

jul-10

okt-10

jan-1

1

apr-

11

jul-11

okt-11

jan-1

2

2009 2010 2011 2012

Chart Sources: IEA, Bloomberg, SEB Commodity Research

MonthlyMonthlyMonthlyMonthly global crude oil demand estimatesglobal crude oil demand estimatesglobal crude oil demand estimatesglobal crude oil demand estimates

2011

(mb/d)

Revision

(kb/d)

2012

(mb/d)

Revision

(kb/d)IEA 89.1 +10 89.9 +10EIA 87.90 -30 88.96 -290

OPEC 87.77 -40 88.63 -130

SEBSEBSEBSEB average Brent crudeaverage Brent crudeaverage Brent crudeaverage Brent crude oiloiloiloil price forecastprice forecastprice forecastprice forecast

($/b) Q1 Q2 Q3 Q4 FullYear

2012 120 115 115 120 1182013 - - - - 120

Q2-Q3 2012 pending revision for geopolitical risk premium


3/12

3


Crude oilCrude oil priceCrude oil priceCrude oil priceCrude oil price(NYMEX/ICE, $/b, front month, weekly closing)

12 month12 month12 month12 month time spreadtime spreadtime spreadtime spread(NYMEX/ICE, %, daily closing, >0: contango,


4/12

4


Crude oilUS crude oil inventoriesUS crude oil inventoriesUS crude oil inventoriesUS crude oil inventories(DOE, mb, weekly data)

OOOOECDECDECDECD totaltotaltotaltotal industry oil stocksindustry oil stocksindustry oil stocksindustry oil stocks(mb, monthly data)

310

320

330

340

350

360

370

380

j f m a m j j a s o n d

5 year average

2011

2012

c

2525

2550

2575

2600

2625

2650

2675

2700

2725

2750

2775

2800


5 year range, top

5 year range, bottom

2012

5 year average

OECD Europe industry oil stocksOECD Europe industry oil stocksOECD Europe industry oil stocksOECD Europe industry oil stocks(mb, monthly data)

OECD North America indOECD North America indOECD North America indOECD North America industry oil stocksustry oil stocksustry oil stocksustry oil stocks(mb, monthly data)

900

910

920

930

940

950

960

970

980

990

1000

1010

1020


5 year range, top


2012

5 year average

1175

1200

1225

1250

1275

1300

1325

1350

1375

1400


5 year range, top


2012

5 year average

OECD Asia & Oceania industry oil stocksOECD Asia & Oceania industry oil stocksOECD Asia & Oceania industry oil stocksOECD Asia & Oceania industry oil stocks(mb, monthly data)

OPEC productionOPEC productionOPEC productionOPEC production(kb/d, monthly data)

375

380

385

390

395

400

405

410

415

420

425

430

435440

445

450


5 year range, top


2012

5 year average

24000

26000

28000

30000

32000

34000

jan-0

8

mar-

08

ma

j-08

jul-08

sep-0

8

nov-0

8

jan-0

9

mar-

09

ma

j-09

jul-09

sep-0

9

nov-0

9

jan-1

0

mar-

10

ma

j-10

jul-10

sep-1

0

nov-1

0

jan-1

1

mar-

11

ma

j-11

jul-11

sep-1

1

nov-1

1

jan-1

2

OPEC-12 production

OPEC-11 production

Chart Sources: Bloomberg, IEA, SEB Commodity Research


5/12

5


European oil product markets

Global refining economics continued to improve inMarch due to the impact of the closure during the pastyear of Atlantic basin capacity totalling around 1.0

mb/d, and relatively low global output resulting fromseasonal spring maintenance, especially in Asia whichis set to last until May. However, the latter is likely tobe at least partly offset by new capacity start-ups andearthquake damaged Japanese refineries coming backonline. The latest improvement in refinery economicsis mainly due to a sharp upturn in the gasoline crack. Atthe same time, cracks and prices for the rest of thebarrel were relatively stable in March. While refineryshutdowns in the Atlantic basin may continue in 2012,they will probably be offset by additional new Asiancapacity. Indeed, we expect the industry to continue toswitch from older developed market refineries to new

complex facilities in emerging markets, maintainingsurplus global capacity.

Light ends: Naphtha and gasoline prices have divergedsignificantly in recent weeks. Worldwide gasoline demand isstrong while inventories are low or falling. Further support isprovided by the switch to more expensive summer quality

gasoline and the approaching driving season. The naphthamarket is relatively well balanced with its gasoline

counterpart pulling naphtha into the blending pool, whilepetrochemical demand is relatively healthy. However, the

naphtha crack remains negative and European inventoriesare rising. The light end of the barrel looks likely to remain

well supported in the short-term.

Middle distillates: The unusually warm winter both inEurope and the US continues to affect middle distillatemarkets. Several tens of millions of barrels less than normalhave been consumed in the Atlantic basin. Still, both cracks

and prices are relatively firm and the overall inventorypicture fairly normal for the season. While jet fuel is still

limited by seasonal weakness, inventories remain slightlybelow the 5-year average which may provide additionalsupport when demand returns. The diesel market is quiet

but supported by solid non-European demand keepingarbitrage cargoes elsewhere. The gasoil market is weak in

Europe though heating oil is even weaker in the US,maintaining open bearish arbitrage barrel flows to Europe.

Heavy ends: The LS-HS differential continued to increasein March, driven both by weak HS and strong LS. The

European HS market is being adversely affected by the lackof ships available to transport surplus barrels eastbound

where demand is stronger, although it is supported byrefineries seeking alternatives to expensive crude oil. Theapproaching change from HS to LS gasoil in US and

Canadian waters (August 1), which is likely to switch ~200kb/d in demand, is probably an increasingly important

driver. In addition, Atlantic basin refinery shutdowns arehurting LS supply more than that of its HS counterpart.

European lEuropean lEuropean lEuropean lightightightight endendendend benchmarksbenchmarksbenchmarksbenchmarks($/t, daily closing)

600

650

700

750

800

850

900

950

1000

1050

1100

1150

1200

jan-1

0

feb

-10

mar-

10

apr-

10

ma

j-10

jun-1

0

jul-10

aug-1

0

sep-1

0

okt-10

nov-1

0

dec-1

0

jan-1

1

feb

-11

mar-

11

apr-

11

ma

j-11

jun-1

1

jul-11

aug-1

1

sep-1

1

okt-11

nov-1

1

dec-1

1

jan-1

2

feb

-12

mar-

12

Naphtha

Gasoline

European mEuropean mEuropean mEuropean middleiddleiddleiddle distillatedistillatedistillatedistillate benchmarksbenchmarksbenchmarksbenchmarks($/t, daily closing)

550

600

650

700

750

800

850

900

950

1000

1050

1100

1150

jan-1

0

feb

-10

mar-

10

apr-

10

ma

j-10

jun-1

0

jul-10

aug-1

0

sep-1

0

okt-10

nov-1

0

dec-1

0

jan-1

1

feb

-11

mar-

11

apr-

11

ma

j-11

jun-1

1

jul-11

aug-1

1

sep-1

1

okt-11

nov-1

1

dec-1

1

jan-1

2

feb

-12

mar-

12

Jet fuel

Diesel 10 ppm

Gasoil 0.1%

EuropeanEuropeanEuropeanEuropean fuel oilfuel oilfuel oilfuel oil benchmarksbenchmarksbenchmarksbenchmarks($/t, daily closing)

350375400425450475500525550575600625650675700725750775800

jan-

10

feb

-10

mar-

10

apr-

10

ma

j-10

jun-

10

jul-10

aug-

10

sep-

10

okt-10

nov-1

0

dec-

10

jan-

11

feb

-11

mar-

11

apr-

11

ma

j-11

jun-

11

jul-11

aug-

11

sep-

11

okt-11

nov-1

1

dec-

11

jan-

12

feb

-12

mar-

12

High sulphur fuel oil (3.5%)

Low sulphur fuel oil (1.0%)

Chart Sources: Bloomberg, SEB Commodity Research


6/12

6


Oil productsUS gUS gUS gUS gasoline and distillate inventoriesasoline and distillate inventoriesasoline and distillate inventoriesasoline and distillate inventories(DOE, mb, weekly data)

US product benchmarksUS product benchmarksUS product benchmarksUS product benchmarks(NYMEX, /gal, front month, daily closing)

120

130

140

150

160

170

180

190

200

210

220

230

240


Gasoline 5 year average

Gasoline 2012

Distillate fuel oil 5 year average

Distillate fuel oil 2012

180190200210220230240250260270280290300310320330

340350360

jan-1

0

feb

-10

mar-

10

apr-

10

ma

j-10

jun-1

0

jul-10

aug-1

0

sep-1

0

okt-10

nov-1

0

dec-1

0

jan-1

1

feb

-11

mar-

11

apr-

11

ma

j-11

jun-1

1

jul-11

aug-1

1

sep-1

1

okt-11

nov-1

1

dec-1

1

jan-1

2

feb

-12

mar-

12

Gasoline

Heating oil

US refinery utilizationUS refinery utilizationUS refinery utilizationUS refinery utilization(%, weekly data)

ICE Gasoil andICE Gasoil andICE Gasoil andICE Gasoil and European premiumsEuropean premiumsEuropean premiumsEuropean premiums to Gasoilto Gasoilto Gasoilto Gasoil($/t, daily closing)

81

82

83

84

85

86

87

88

89

90

91


2007-2011 avg.

2012

550

600

650

700

750

800

850

900

950

1000

1050

1100

jan-1

0

feb

-10

mar-

10

apr-

10

ma

j-10

jun-1

0

jul-10

aug-1

0

sep-1

0

okt-10

nov-1

0

dec-1

0

jan-1

1

feb

-11

mar-

11

apr-

11

ma

j-11

jun-1

1

jul-11

aug-1

1

sep-1

1

okt-11

nov-1

1

dec-1

1

jan-1

2

feb

-12

mar-

12

-20

-10

0

10

20

30

40

50

60

70

80

90

100

110

ICE Gasoil 0.1% (left)

Jet fuel premium (right)Diesel 10 ppm premium (right)

EuropeanEuropeanEuropeanEuropean pppproductroductroductroduct crackscrackscrackscracks($/b, daily closing)

European lEuropean lEuropean lEuropean lowowowow ---- hhhhighighighigh sulphursulphursulphursulphur fuel oilfuel oilfuel oilfuel oil differentialdifferentialdifferentialdifferential($/t, daily closing)

-25

-20

-15

-10

-5

0

5

1015

20

25

30

jan-1

0

feb

-10

mar-

10

apr-

10

ma

j-10

jun-1

0

jul-10

aug-1

0

sep-1

0

okt-10

nov-1

0

dec-1

0

jan-1

1

feb

-11

mar-

11

apr-

11

ma

j-11

jun-1

1

jul-11

aug-1

1

sep-1

1

okt-11

nov-1

1

dec-1

1

jan-1

2

feb

-12

mar-

12

Naphtha GasolineJet fuel Gasoil 0.1%Low sulphur fuel oil High sulphur fuel oilDiesel 10 ppm

-15-10-505

101520253035404550

5560657075

jan-1

0

feb

-10

mar-

10

apr-

10

ma

j-10

jun-1

0

jul-10

aug-1

0

sep-1

0

okt-10

nov-1

0

dec-1

0

jan-1

1

feb

-11

mar-

11

apr-

11

ma

j-11

jun-1

1

jul-11

aug-1

1

sep-1

1

okt-11

nov-1

1

dec-1

1

jan-1

2

feb

-12

mar-

12

Chart Sources: Bloomberg, SEB C ommodity Research


7/12

7


Oil productsRegional 3Regional 3Regional 3Regional 3----2222----1 cracks1 cracks1 cracks1 cracks($/b, daily closing)

European naphtha stocksEuropean naphtha stocksEuropean naphtha stocksEuropean naphtha stocks(kt, monthly data)

-6-4-202468

1012141618202224262830

32343638

jan-1

0

feb

-10

mar-

10

apr-

10

ma

j-10

jun-1

0

jul-10

aug-1

0

sep-1

0

okt-10

nov-1

0

dec-1

0

jan-1

1

feb

-11

mar-

11

apr-

11

ma

j-11

jun-1

1

jul-11

aug-1

1

sep-1

1

okt-11

nov-1

1

dec-1

1

jan-1

2

feb

-12

mar-

12

Asia (Minas)US (WTI)Europe (Brent)Persian Gulf (Dubai)

20

30

40

50

60

70

80

90

100

110

120

130

140

150

160


4 year range, top


2012

4 year average

European gasoline stocksEuropean gasoline stocksEuropean gasoline stocksEuropean gasoline stocks(kt, monthly data)

European jet fuel stocksEuropean jet fuel stocksEuropean jet fuel stocksEuropean jet fuel stocks(kt, monthly data)

400

450

500

550

600

650

700

750

800

850

900

950

1000

1050

1100

1150


4 year range, top


2012

4 year average

100

150

200

250

300350

400

450

500

550

600

650

700

750

800

850

900


4 year range, top


2012

4 year average

European gasoil stocksEuropean gasoil stocksEuropean gasoil stocksEuropean gasoil stocks(kt, monthly data)

European fuel oil stocksEuropean fuel oil stocksEuropean fuel oil stocksEuropean fuel oil stocks(kt, monthly data)

1000110012001300140015001600170018001900200021002200230024002500260027002800290030003100


4 year range, top


2012

4 year average

400

450

500

550

600

650

700

750

800

850

900

950

1000

1050


4 year range, top


2012

4 year average

Chart Sources: Bloomberg, PJK International, SEB Commodity Research


8/12

8


Oil productsUS implied crude oil demandUS implied crude oil demandUS implied crude oil demandUS implied crude oil demand(DOE, mb/d, weekly data)

US implied gasoline demandUS implied gasoline demandUS implied gasoline demandUS implied gasoline demand(DOE, mb/d, weekly data)

13,5

13,8

14,0

14,3

14,5

14,8

15,0

15,3

15,5


5y avg.

2011

2012

8,5

8,7

8,9

9,1

9,3

9,5

9,7


5y avg.

2011

2012

US implied distillate demandUS implied distillate demandUS implied distillate demandUS implied distillate demand(DOE, mb/d, weekly data)

Gasoline arbitrage Rotterdam to New YorkGasoline arbitrage Rotterdam to New YorkGasoline arbitrage Rotterdam to New YorkGasoline arbitrage Rotterdam to New York($/t, daily closing)

4,0

4,2

4,4

4,6

4,8

5,0

5,2

5,4

5,6


5y avg.

2011

2012

-25

-20

-15

-10

-5

0

5

10

15

20

jan-1

1

feb

-11

mar-

11

apr-

11

ma

j-11

jun-1

1

jul-11

aug-1

1

sep-1

1

okt-11

nov-1

1

dec-1

1

jan-1

2

feb

-12

mar-

12

Middle distillate arbitrage Rotterdam to New YorkMiddle distillate arbitrage Rotterdam to New YorkMiddle distillate arbitrage Rotterdam to New YorkMiddle distillate arbitrage Rotterdam to New York($/t, daily closing)

-25

-20

-15

-10

-5

0

5

10

15

20

jan-1

1

feb

-11

mar-

11

apr-

11

ma

j-11

jun-1

1

jul-11

aug-1

1

sep-1

1

okt-11

nov-1

1

dec-1

1

jan-1

2

feb

-12

mar-

12

Heating oil/Gasoil

Jet fuel/Kerosene



9/12

9


Related energy marketsUS natural gas priceUS natural gas priceUS natural gas priceUS natural gas price(NYMEX, $/MMBtu, front month, weekly closing)

UKUKUKUK natural gas pricenatural gas pricenatural gas pricenatural gas price(ICE, front month, weekly closing)

2

3

4

5

6

7

8

9

10

11

12

13

14

2007

2008

2009

2010

2011

2012

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

2007

2008

2009

2010

2011

2012

10

20

30

40

50

60

70

80

90$/MMBtu (left axis)

GBp/therm (right axis)

Nordic power priceNordic power priceNordic power priceNordic power price(Nord Pool, /MWh, front quarter, weekly closing)

Continental power priceContinental power priceContinental power priceContinental power price(EEX, /MWh, front quarter, weekly closing)

20

25

30

35

40

45

50

55

60

65

70

75

80

2007

2008

2009

2010

2011

2012

20

25

30

35

40

45

50

55

60

65

70

75

80

85

90

95

2007

2008

2009

2010

2011

2012

EUA priceEUA priceEUA priceEUA price(ECX ICE, /t, Dec. 11, weekly closing)

CoalCoalCoalCoal pricepricepriceprice(CIF ARA steam coal, API#2, daily closing)

6

8

10

12

14

16

18

20

22

24

26

28

30

32

34

2007

2008

2009

2010

2011

2012

75

80

85

90

95

100

105

110

115120

125

130

135

apr-

10

ma

j-10

jun-1

0

jul-10

aug-1

0

sep-1

0

okt-10

nov-1

0

dec-1

0

jan-1

1

feb

-11

mar-

11

apr-

11

ma

j-11

jun-1

1

jul-11

aug-1

1

sep-1

1

okt-11

nov-1

1

dec-1

1

jan-1

2

feb

-12

mar-

12



10/12

10


Market indicatorsMSCI WorldMSCI WorldMSCI WorldMSCI World equity market indexequity market indexequity market indexequity market index(weekly closing)

UBS Bloomberg CMCIUBS Bloomberg CMCIUBS Bloomberg CMCIUBS Bloomberg CMCI commodity market indexcommodity market indexcommodity market indexcommodity market index(price index, weekly closing)

600

700

800

900

1000

1100

1200

1300

1400

1500

1600

1700

2005

2006

2007

2008

2009

2010

2011

2012

600

700

800

900

1000

1100

1200

1300

1400

1500

1600

1700

1800

2005

2006

2007

2008

2009

2010

2011

2012

JPM global manufacturing PMIJPM global manufacturing PMIJPM global manufacturing PMIJPM global manufacturing PMI(monthly, PMIs >50 expansive)

Regional PMI:sRegional PMI:sRegional PMI:sRegional PMI:s(monthly data)

32

34

36

3840

42

44

46

48

50

52

54

56

58

2005

2006

2007

2008

2009

2010

2011

2012

30

35

40

45

50

55

60

65

mar-

06

jun-0

6

sep-0

6

dec-0

6

mar-

07

jun-0

7

sep-0

7

dec-0

7

mar-

08

jun-0

8

sep-0

8

dec-0

8

mar-

09

jun-0

9

sep-0

9

dec-0

9

mar-

10

jun-1

0

sep-1

0

dec-1

0

mar-

11

jun-1

1

sep-1

1

dec-1

1

mar-

12

US

Eurozone

China

Reference

Regional industrial productionRegional industrial productionRegional industrial productionRegional industrial production growthgrowthgrowthgrowth(%, y/y, monthly data)

OECD composite leading indicatorsOECD composite leading indicatorsOECD composite leading indicatorsOECD composite leading indicators(monthly, 100 corresponds to long term trend growth in industrial production)

-25

-20

-15

-10

-5

0

5

10

15

20

25

mar-

06

jun-0

6

sep-0

6

dec-0

6

mar-

07

jun-0

7

sep-0

7

dec-0

7

mar-

08

jun-0

8

sep-0

8

dec-0

8

mar-

09

jun-0

9

sep-0

9

dec-0

9

mar-

10

jun-1

0

sep-1

0

dec-1

0

mar-

11

jun-1

1

sep-1

1

dec-1

1

US

EurozoneChina

8889

9091

92

93

94

9596

9798

99

100101

102103

104105

2005

2006

2007

2008

2009

2010

2011

2012

China

Eurozone

OECD

USA

Reference

Chart Sources: Bloomberg, OECD, SEB Commodity Research


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DISCLAIMER & CONFIDENTIALITY NOTICE

The information in this document has been compiled by SEB Merchant Banking, a division within Skandinaviska EnskildaBanken AB (publ) (SEB).

Opinions contained in this report represent the banks present opinion only and are subject to change without notice. All

information contained in this report has been compiled in good faith from sources believed to be reliable. However, norepresentation or warranty, expressed or implied, is made with respect to the completeness or accuracy of its contents andthe information is not to be relied upon as authoritative. Anyone considering taking actions based upon the content of thisdocument is urged to base his or her investment decisions upon such investigations as he or she deems necessary. Thisdocument is being provided as information only, and no specific actions are being solicited as a result of it; to the extentpermitted by law, no liability whatsoever is accepted for any direct or consequential loss arising from use of this documentor its contents.

SEB is a public company incorporated in Stockholm, Sweden, with limited liability. It is a participant at major Nordic andother European Regulated Markets and Multilateral Trading Facilities (as well as some non-European equivalent markets)for trading in financial instruments, such as markets operated by NASDAQ OMX, NYSE Euronext, London Stock Exchange,Deutsche Brse, Swiss Exchanges, Turquoise and Chi-X. SEB is authorized and regulated by Finansinspektionen in Sweden;

it is authorized and subject to limited regulation by the Financial Services Authority for the conduct of designatedinvestment business in the UK, and is subject to the provisions of relevant regulators in all other jurisdictions where SEBconducts operations.

SEB Merchant Banking. All rights reserved.

SEB Commodity Research

Bjarne Schieldrop, Chief Commodity [email protected]

+47 9248 9230

Filip Petersson, Commodity [email protected]

+46 8 506 230 47


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www.seb.se

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