Generic Hero BannerGeneric Hero Banner
Latest market news

Run cuts loom as European refiners grapple with Omicron

  • Market: Oil products
  • 01/12/21

European refiners have been plunged back into a challenging economic environment following a downturn in refinery margins, with crude run cuts widely touted as markets assess the potential impacts of the new Omicron strain of the Covid-19 virus.

Transport fuel margins plummeted in the second half of November amid growing concerns of another winter marred by Covid-19 restrictions. European 321 crack spreads — which compare three parts crude with two parts gasoline and one part diesel, used as a proxy for overall refining margins in Europe — hit their lowest since March on 23 November at $6.12/bl, and closed the month at just $6.95/bl after starting November at $15.53/bl. Margins have nosedived even despite a crash in crude prices over the same period — North Sea Dated lost 16pc over the course of the month to end November at $70.98/bl, its lowest since August.

The recent collapse in refining margins is likely to lead to widespread crude run cuts at European refineries according to traders, with some estimating cuts as high as 10pc. Some traders also remarked on lower fuel supplies on offer in the region — a sign of reduced production. In addition to weaker crack spreads, refiners may also be mulling production cuts to adjust for weaker demand if lockdowns do return across the continent this winter. Austria became the first European country to reimpose a full national lockdown on 22 November, and since then the fuel demand outlook has suffered a fresh blow with the discovery of the Omicron strain, which sparked one of the sharpest price drops in the history of crude futures trading on 26 November.

Northwest European gasoline shed just over $200/t in outright terms — and $11/bl against Dated crude — during November, ending at $635/t. During that time the market structure in the paper market flattened rapidly from a $45/t premium of front-month Eurobob oxy swaps over second-month contracts — known as backwardation — a month ago to less than $5/t yesterday. The gasoline market has moved rapidly from a market characterised by tight prompt supply at the beginning of the month, to concerns that runs will be trimmed to compensate for falling demand.

Middle-distillates margins have also fallen, albeit less sharply than gasoline. Diesel margins to Dated retreated to around $10/bl by the end of November, from as high as $14/bl during the month. Backwardation on the gasoil forward curve has seen independent diesel storage volumes at ARA hit their lowest since before the pandemic, although backwardation is now flattening and free tank space could provide one outlet for traders if demand is curtailed by lockdown measures.

Jet fuel crack spreads ended the month at $9.19/bl over Dated — dipping as low as $6.72/bl on 26 November, a three-month low — from over a $12/bl average in October. The news of a new variant of the virus, and consequently the potential for wholesale travel bans, would turn October's recovery on its head as passenger confidence wanes and demand for air travel falls off again. That will probably push refiners to divert jet fuel into the diesel pool, as was commonplace earlier in the pandemic, which could help to curb supply and provide a floor to spot prices. Imports from east of Suez remain relatively high though — around 1mn t of jet fuel is expected to hit Europe in December, just below November levels.

But refiners could find some solace in other products. Prices of key gasoline blending component naphtha fell by less than those of gasoline, supported by the likelihood of continued firm demand for the product from the European petrochemical sector. Northwest European naphtha refining margins to Dated rose to four-week highs of $2.42/bl on 30 November.

And fuel oil margins to crude also diverged from other transport fuels, as the prospect of lower output because of refinery run cuts buoyed margins, in tandem with steady marine fuel demand. Very-low sulphur fuel oil premiums to front-month Ice Brent hit a five-week high of $6.27/bl yesterday, while high-sulphur fuel oil discounts to Ice Brent reached a five-week high of $13.69/bl.

Cutting crude unit runs was paired with higher throughputs of secondary feedstocks in cracking units earlier in the pandemic, as it gave refiners the flexibility to produce enough fuel to meet downstream contracts while reducing exposure to an overall weak margin landscape, as well as helping to minimise jet fuel production. Fresh run cuts could provide some support to vacuum gasoil (VGO) demand — used as a feedstock for cracking units — at a time of seasonal weakness. VGO demand typically dwindles as the end of the calendar year approaches because of an annual trend to run down inventories in the US in particular, but also in Europe.

But unlike earlier in the pandemic, operating costs for hydrocracking units in particular have ballooned since the natural gas price spike, which coupled with low gasoil margins could disincentivise refiners from raising runs in those units. Hydrogen was costing refiners around $5-6/bl of crude processed in October according to the IEA, up from just around 60¢/bl in 2019. It is unclear how refiners will navigate this issue, although it could provide a ceiling to high-sulphur VGO demand.


Sharelinkedin-sharetwitter-sharefacebook-shareemail-share

Related news posts

Argus illuminates the markets by putting a lens on the areas that matter most to you. The market news and commentary we publish reveals vital insights that enable you to make stronger, well-informed decisions. Explore a selection of news stories related to this one.

News
02/04/25

Mexico manufacturing extends contraction in March

Mexico manufacturing extends contraction in March

Mexico City, 2 April (Argus) — Mexico's manufacturing sector contracted for a 12th consecutive month in March, with production and employment both deepening their slides, according to a survey released today. The manufacturing purchasing managers' index (PMI) ticked up to 47.2 in March from 47.1 in February, but remained below the 50-point threshold between contraction and expansion, according to the latest PMI survey from the finance executive association IMEF. Manufacturing, which accounts for about a fifth of Mexico's economy, is led by the auto sector, contributing about 18pc of manufacturing GDP. Within the manufacturing PMI, the new orders index rose by 1.3 points to 45.3, still deep in contraction. Meanwhile, production fell by 0.6 points to 44.6. The employment index also declined 0.6 points to 46.4 in March, now in contraction for 14 consecutive months. Meanwhile, the non-manufacturing PMI — covering services and commerce — declined 0.8 points to 48.8 in March from 49.6 in February, holding in contraction for a fourth consecutive month. Within the non-manufacturing PMI, new orders fell 1.5 points to 48.2 and production declined 1 point to 47.5 with employment down a point as well in March to 47.5, as all three pushed deeper into contraction. In contrast, the inventories component rose 3.5 points to 50.6 into expansion territory in March. But this may be the result of company strategies to stockpile inventories ahead of US tariffs and the reciprocal measures Mexico is set to announce on 3 April, IMEF technical advisory board member Sergio Luna said. PMI data show that the economic stagnation that began in late 2024 persisted through March, with results from January and February pointing to a sharp slowdown in the first quarter, IMEF said. This follows annualized GDP growth of 0.5pc in the fourth quarter of 2024, slowing from 1.7pc in the third quarter, according to national statistics agency data. Luna said concerns over US tariffs continue to drive much of the uncertainty reflected in the PMI data. Internal factors — such as reduced government spending to contain the fiscal deficit and investor unease over judicial reforms passed last year — are also weighing on activity, Luna added. By James Young Send comments and request more information at feedback@argusmedia.com Copyright © 2025. Argus Media group . All rights reserved.

Find out more
News

India's IOC cuts jet fuel prices by 6pc for April


02/04/25
News
02/04/25

India's IOC cuts jet fuel prices by 6pc for April

Mumbai, 2 April (Argus) — Indian state-controlled refiner IOC has reduced jet fuel prices by 6pc effective from 1 April. IOC cut prices in Mumbai, capital New Delhi, Kolkata and Chennai by 6pc from a month earlier. Prices vary from state to state depending on local taxes. Asian jet fuel margins — or Singapore jet fuel swaps against Dubai crude values — averaged $13.04/bl in March, down from $15.23/bl in February. India's jet fuel consumption stood at 203,100 b/d in March, up by 5pc on the year, provisional data from the oil ministry show. By Roshni Devi Jet fuel prices in India Rupees/kl City Apr-25 Mar-25 m-o-m % Delhi 89,441.18 95,311.72 -6 Kolkata 91,921.00 97,588.66 -6 Mumbai 83,575.42 89,070.03 -6 Chennai 92,503.80 98,567.90 -6 Source: IOC Send comments and request more information at feedback@argusmedia.com Copyright © 2025. Argus Media group . All rights reserved.

News

US oil, farm groups push EPA for steep biofuel mandate


01/04/25
News
01/04/25

US oil, farm groups push EPA for steep biofuel mandate

New York, 1 April (Argus) — The American Petroleum Institute and biofuel-supporting groups told Environmental Protection Agency (EPA) officials at a meeting today that the agency should sharply raise advanced biofuel blend mandates for 2026. The coalition told EPA that it supported a biomass-based diesel mandate next year of 5.25bn USG, up from 3.35bn USG this year, and a broader advanced biofuel mandate, including the cellulosic category, at 10bn Renewable Identification Number (RIN) credits, up from 7.33bn RINs this year, according to three different groups that attended the meeting. Both mandates would be record highs for the Renewable Fuel Standard (RFS) program. Soybean oil futures and RIN credit prices have risen sharply over the past week on optimism that oil and biofuel interests were working to coordinate volume mandate requests for consideration by President Donald Trump's administration. The coalition is also pushing the agency to set a total conventional volume requirement at 25bn RINs, which would keep an implied mandate for corn ethanol flat at 15bn USG. Ethanol groups had previously eyed a mandate even higher, but limits on the amount of ethanol that can be blended into gasoline make much more-stringent requirements a tough sell to oil refiners. The coalition provided no specific request for the cellulosic biofuel subcategory, where most credit generation comes from biogas. Credits in that category are more expensive, but price concerns have been less potent recently given an EPA proposal to lower previously set cellulosic obligations, signaling that future volume requirements can be cut, too. EPA is aiming to finalize new RFS volume mandates by the end of the year if not earlier, people familiar with the administration's thinking have said. EPA officials signaled at the meeting they were working urgently on the rulemaking. "The agency is intent on getting the RFS program back on the statutory timeline for issuing renewable volume obligation rules," EPA said, declining to comment further on its plans for the rule. The RFS program requires oil refiners and importers to blend biofuels into the conventional fuel supply or buy credits from those who do. Under the program's unique nesting structure, credits from blending lower-carbon biofuels can be used to meet obligations for other program categories. One gallon of corn ethanol generates 1 RIN, but more energy-dense fuels earn more RIN credits per gallon. Some disagreements persist While groups at the meeting were aligned around high-level mandates, how administration officials and courts treat small refinery requests for exemptions from RFS requirements could undercut those targets. Groups present were broadly aligned on asking EPA not to grant widespread exemptions, though there is still disagreement in the industry about how best to account for exempted volumes when deciding requirements for other refiners. Groups present at the meeting today included the American Petroleum Institute and representatives of biofuel producers and crop feedstock suppliers. Some groups that previously engaged with the coalition's efforts to project unity to the Trump administration were not present. And some groups more historically skeptical of the RFS and more supportive of small refinery exemptions — including the American Fuel and Petrochemical Manufacturers — have not been closely involved. Fuel marketer groups notably did not attend the meeting after a representative sparred with others in the coalition at an American Petroleum Institute meeting last month. Some retail groups, including the National Association of Convenience Stores and the National Association of Truck Stop Operators, instead sent a letter to EPA today arguing that the groups pushing steep volumes are discounting potential headwinds to the sector from new tax credit policy. Some of the groups advocating for higher biofuel volumes have pointed to high production capacity and feedstock availability, but have preferred to ignore thornier issues like tax credits, lobbyists say. "An overly aggressive increase in advanced biofuel blending mandates under the RFS will be punitive for American consumers" without extending a long-running $1/USG tax credit for biomass-based diesel blenders, the retailers' letter said. That incentive expired last year and was replaced by the Inflation Reduction Act's "45Z" credit, which offers subsidies to producers instead of blenders and throttles benefits based on carbon intensity. Generally lower credit values for biomass-based diesel — coupled with the US government's delays setting final regulations on qualifying for the credit — have spurred a sharp drop in biofuel production to start the year. Without a blenders credit, the RFS volume mandates pushed by some groups could increase retail diesel prices by 30¢/USG, the fuel marketers estimate, a potential political headache for a president that ran on curbing consumer costs. Other biofuel groups say that extending the credit would be an uphill battle this year, with some lawmakers and lobbyists instead focused on legislatively tweaking the 45Z incentive's rules to benefit crop feedstocks instead of reverting wholesale to the prior tax policy. By Cole Martin Send comments and request more information at feedback@argusmedia.com Copyright © 2025. Argus Media group . All rights reserved.

News

Mexico GDP outlook falls again in March survey


01/04/25
News
01/04/25

Mexico GDP outlook falls again in March survey

Mexico City, 1 April (Argus) — Private-sector analysts lowered Mexico's 2025 GDP growth forecast to 0.5pc in the central bank's March survey, down by more than a third from the prior forecast, driven by increased concerns over US trade policy and weakening domestic investment. The latest outlook is down from 0.8pc estimated in February and marks the largest of four consecutive reductions in the median forecast for 2025 GDP growth in the central bank's monthly surveys since December. Mexico's economy decelerated in the fourth quarter of 2024 to an annualized rate of 0.5pc from 1.7pc the previous quarter, the slowest expansion since the first quarter of 2021, according to statistics agency data. Uncertainty over US trade policy has weighed on investment and contributed to the slowdown. Concerns have intensified in recent weeks with US president Donald Trump set to announce sweeping new tariffs on 2 April. Mexico is preparing its response, possibly including reciprocal tariffs, on 3 April. A key concern in Mexico is an expiring carveout to the tariffs for treaties aligned with US-Mexico-Canada (USMCA) free trade agreement rules of origin. Mexico's economy minister said last week ongoing negotiations aim to secure a "preferential tariff," including a continuance of that exclusion and lower tariffs for goods progressing toward USMCA compliance. The median 2026 GDP growth estimate fell to 1.6pc from 1.7pc in February. Analysts again cited security, governance and trade policy as top constraints to growth. Year-end 2025 inflation expectations edged lower to 3.70pc in March from 3.71pc in February. The central bank's board of governors cut Mexico's target interest rate by 50 basis points to 9pc from 9.5pc on 27 March, citing expectations that inflation will continue to slow toward the central bank's 3pc long-term goal and reach 3.3pc by year-end. The board said it would consider additional cuts of that size at future meetings. Mexico's consumer price index accelerated to an annual 3.77pc in February, as slower growth in agricultural prices was offset by faster inflation in services. The target interest rate is projected to fall to 8pc by year-end, compared with 8.25pc in February's survey. The median exchange rate forecast for end-2025 reflected expectations of the peso ending the year slightly stronger at Ps20.80 to the US dollar from Ps20.85/$1 estimated in the prior forecast. The end-2026 estimate firmed slightly to Ps21.30/$1 from Ps21.36/$1. By James Young Send comments and request more information at feedback@argusmedia.com Copyright © 2025. Argus Media group . All rights reserved.

News

Singapore’s base oil imports edge up in February


01/04/25
News
01/04/25

Singapore’s base oil imports edge up in February

Singapore, 1 April (Argus) — Singapore's base oil imports increased for the third consecutive month in February, GTT data show, supported by stable demand in the city state. Import growth slowed in February, in line with a drop in industrial performance. The country's manufacturing output fell by 1.3pc on the year, and by 7.5pc on a seasonally adjusted month-on-month basis, according to data from the Economic Development Board. The overall manufacturing sector grew for the 18th consecutive month, but PMI slipped from 50.9 to 50.7 in February, data from the Singapore Institute of Purchasing and Materials Management show, in line with growing uncertainties over global trade flows. A PMI reading above 50 indicates expansion. Supplies from South Korea recovered from January's five-month low, in line with higher exports from the northeast Asian country, but remained below the five-year monthly average of 12,300t. Lower South Korean volumes were balanced by higher receipts of Taiwanese cargoes, which were likely boosted by delays in customs clearance a month earlier. South Korea and Taiwan are major producers of Group II base oils. Zero imports were recorded from Japan for the third consecutive month. Exports from the Group I supplier have fallen ahead of a series of plant maintenances by Japanese refiners ENEOS and Idemitsu that will affect around 925,000t/yr of refining capacity over February-November. Increased Saudi Arabian cargoes made up for the shortfall in Japanese volumes, with imports recorded for the 10th consecutive month. Saudi Arabia produces Group I and II base oils, but supplies to Singapore likely comprise of mainly Group I volumes because of the regional shortage from permanent plant closures in Japan. By Tara Tang Singapore's base oil imports t Feb'25 m-o-m ± % y-o-y ± % Jan-Feb'25 y-o-y ± % Qatar 23,135.0 -12.2 22.6 49,488.0 74.2 South Korea 9,090.0 30.2 -18.2 16,074.0 -9.3 Taiwan 12,458.0 NA 825.6 12,458.0 119.0 Saudi Arabia 5,306.0 76.9 5.7 8,306.0 65.5 Thailand 5,046.0 -16.4 152.8 11,081.0 234.3 Total 77,915.0 1.9 75.7 154,392.0 129.6 Source: GTT Total includes all countries, not just those listed Send comments and request more information at feedback@argusmedia.com Copyright © 2025. Argus Media group . All rights reserved.

Generic Hero Banner

Business intelligence reports

Get concise, trustworthy and unbiased analysis of the latest trends and developments in oil and energy markets. These reports are specially created for decision makers who don’t have time to track markets day-by-day, minute-by-minute.

Learn more