Viewpoint: US Gulf high-octane component prices to rise

Spanish Market: Oil products
24/12/24

Cash prices of high-octane gasoline blending components in the US Gulf coast are likely to rise in 2025 after a year of declines as lower refining capacity starts to thin stocks.

Alkylate and reformate cash prices and differentials have been lower over the course of 2024, in part from weaker refining margins. The lower margins are reflected in the region's crack spreads, which narrowed to $12.94/USG on 19 December from $18.67/USG a year earlier, as abundant supply in the region met weak demand.

Inventories in the region have also been lower over the course of the year. Stocks in the region fell in November by 2pc from a year earlier to an average 29.75mn bl.

US Gulf coast crack spreads have been declining steadily since 2022, according to the Energy Information Administration's (EIA) November Short-Term Energy Outlook, brought on by lower overall product demand, especially for gasoline. But the EIA expects spreads to hold steady next year, even with a decrease in refining capacity, potentially supporting prices for high-octane components.

The upcoming year will also bring a significant refinery closure to the region, which should reduce production and raise cash prices of components such as alkylate and reformate. LyondellBasell's closure of its 264,000 b/d Houston, Texas, refinery is scheduled to start in January. The refinery's fluid catalytic cracking unit (FCC), which converts vacuum gasoil primarily into gasoline blendstocks, is expected to be shut in February, followed by a complete end to crude refining by the end of the first quarter.

US total refining capacity should fall to 17.9mn b/d by the end of 2025, according to the EIA, 400,000 b/d less than at the end of 2024, with the lower production leading to price increases.

Although the LyondellBasell closing should eventually give crack spreads in the region a boost, some in the industry do not expect a return to pre-pandemic levels of refining margins in the immediate future. CVR Energy chief executive David Lamp said in November the company needed "to see additional refining capacity rationalization in both the US and globally" for crack spreads to gain ground.

An increase in consumer demand for gasoline would also support a rise in cash prices and differentials for high-octane components. But the EIA in December forecast consumption nationwide would rise in 2025 by only 10,000 b/d, or 0.1pc, to 8.95mn b/d.

By Jason Metko

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24/12/24

Viewpoint: European HSFO supply to stay short

London, 24 December (Argus) — A sustained reduction in global supply should keep European higher-sulphur fuel oil (HSFO) prices and margins elevated in 2025. European HSFO differentials against the front-month Ice Brent crude futures contract briefly moved to a premium in October 2024, when a fall in production coincided with strengthening demand for high-sulphur marine fuel. A fire at a crude distillation unit in September severely cut output at Motor Oil Hellas' 180,000 b/d Corinth refinery in Greece, a key HSFO bunker producer in the Mediterranean region. The possibility of sudden drops in output at refineries will underpin HSFO margins in 2025, assuming Europe maintains its ban on imports of Russian oil products. Europe imported sour fuel oil from a variety of other countries in 2024 — Iraq emerged as the largest single supplier of high-sulphur residual product, according to Kpler , accounting for about a third of the region's 5.7mn t of imports. Europe's HSFO stocks will come under indirect pressure next year from falling fuel oil output in Russia. Additional upgrading capacity at Russian refineries means output from the world's top fuel oil supplier has been dropping year-on-year. Vortexa data show nearly 37mn t of Russian fuel oil has arrived at non-Russian ports this year, 12pc lower than in 2023. Although Europe cannot take any of this, the fall means less to go around globally and this has a knock-on effect on European supply. If middle-distillate crack spreads stay relatively lacklustre in 2025, appetite for higher-sulphur straight run feedstocks will probably be subdued. This could allow for excess sour fuel oil to find its way into the marine fuels market, where demand for HSFO has been strong. Tankers opting to avoid the risk of being attacked by Yemen-based Houthi militants in the Red Sea are adding weeks to their journey times, and have been looking to HSFO rather than very-low sulphur fuel oil (VLSFO) to keep their bunker costs down. If longer shipping routes remain popular in 2025, demand for HSFO should stay strong. The Emissions Control Area (ECA) that will cover the Mediterranean Sea from 1 May 2025 could dampen buying interest for 3.5pc sulphur marine fuels. A sulphur scrubber can undergo more wear and tear if it is made to reduce a vessel's HSFO emission level to 0.1pc, in line with the ECA, rather than to the current limit of 0.5pc. This increases rates at which the scrubber needs to be replaced, making it uneconomical to install one. Mid-range sulphur fuel oils are now garnering interest from Mediterranean-based bunker buyers as a workaround. LSSR As the ECA comes into force, demand for the sweetest grades of low-sulphur straight-run (LSSR) fuel oil is likely to intensify from those who buy marine fuels for vessels not fitted with scrubbers. Demand for 0.1-0.2pc sulphur straight-run fuel oil has been high in 2024, reinforcing competition between blenders and refiners for Algerian LSSR. Exports of Algerian LSSR were 1.28mn t in the year to 20 December 2024, lower by 38pc from year-earlier levels and by 65pc from the same period in 2022, but global supply was somewhat balanced by output from Nigeria's new 650,000 b/d Dangote refinery. It exported 870,000t of LSSR in 2024, of a reportedly similar grade to the Algerian product according to data from Vortexa. Most Nigerian cargoes exported in 2024 were used for blending, according to information gathered by Argus . LSSR export availability from Dangote will depend on the refinery's ability to run feedstocks through residue fluid catalytic cracking units for gasoline production. Potentially adding to west African LSSR, at the start of December Nigeria's 210,000 b/d Port Harcourt refinery sold its first cargo since its long-awaited restart on 27 November. Port Harcourt's LSSR contains 0.26pc sulphur, according to Kpler. By Bob Wigin and Isabella Reimi Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Trump-Panama tiff highlights rising transit cost

24/12/24

Trump-Panama tiff highlights rising transit cost

New York, 23 December (Argus) — US president-elect Donald Trump's threat on Saturday to reclaim the Panama Canal for the US put a spotlight on rising costs this year and additional fees planned by the Panama Canal Authority (ACP) for 2025 in the ongoing fallout of a 2023 drought in Central America. Trump claimed that the US is the "number one user" of the Panama Canal, with "over 70pc of all transits heading to, or from, US ports" on 21 December. ACP data for ships destined for or departing from the US puts this percentage at 73pc in 2023 and 75.5pc in 2024 based on total tonnage of commodities moved through the canal. "This complete ‘rip-off' of our Country will immediately stop…" Trump said. The base transit tolls at the Panama Canal have been on the rise and are largely in line with those at the Suez Canal, but Panama Canal costs can be much higher for vessel operators that compete in auctions to enter the Central American passageway. The operator of a medium range (MR) tanker traveling laden through the Panama Canal would pay $279,564.87 in transit fees, while the operator of a laden very large gas carrier (VLGC) would pay $505,268.24 without accounting for reservation costs, ACP estimates. Suez Canal fees have also been on the rise , with MR tanker at $274,001 throughout 2024, while a VLGC operator would pay $487,562. But after last year's drought caused the ACP to temporarily limit transits, ACP required shippers to book transit reservations. Shippers unable to secure reservations via pre-booking often resort to the transit slot auction, where winning bids vary wildly. Pre-booked transit slots often quickly sell out to the containership and LPG vessel owners that dominate the top spots on the ACP's client list. Auction prices for the Neopanamax locks, which have a starting bid of $100,000 and handle large vessels like VLGCs, are at about $220,000, per Argus assessments. Auction prices for the Panamax locks, which have a starting bid of $55,000 and handle vessels like MR tankers, are around $75,000. The highest Neopanamax auction price was nearly $4mn, with the highest Panamax auction price at about half that level. In December 2023, 30pc of Panamax lock tanker transits were reserved via the auction system , according to ACP. The president-elect's criticism of the ACP's handling of Panama Canal fees comes as the administrators of the waterway bounce back from a severe drought throughout 2023. Freshwater levels in the manmade Gatun Lake that helps to feed the canal have recovered because of the return of the rainy season this year, but ACP has maintained its requirement that shippers wishing to transit have reserved transit slots. Prior to the drought, ACP maintained a first-come, first-serve basis for vessels without reservations. ACP ups reservation costs, adds fees for 2025 Starting in 2025, ACP is maintaining the auction system while also increasing pre-booking costs and adding other fees. ACP will raise transit reservation fees from $41,000 to $50,000 for Panamax lock transits for "Super" category vessels, including MR tankers. Neopanamax lock transit reservation fees will climb from $80,000 to $100,000 on 1 January. ACP announced a third transit option in late 2024 for vessel operators in the form of the "Last Minute Transit Reservation" (LMTR) fee to start 1 January 2025 alongside other new fees and higher existing reservation fees. ACP set the cost of the LMTR fee at about twice the starting bid of an auction , or $100,000 for Supers and $200,000 for Neopanamax, and will likely offer the LMTR fee to vessels that fail to secure a transit slot at auction. Furthermore, vessel operators that cancel within two days of their transit will be charged a fee at 2.5 times the transit reservation fee, described by the ACP as a surcharge to the existing cancellation fee, which ranges up to 100pc of the transit reservation fee depending on how close to the transit date that an operator cancels. This means that a Super vessel that cancels within two days of its transit date will receive the 2.5 times surcharge on top of the 100pc transit reservation cancellation fee and pay a total of $175,000. A Neopanamax vessel will pay a total of $350,000. "Vessels of war" should also vie for slots: ACP Trump also suggested that the ACP was charging the US Navy, alongside US corporations, "exorbitant prices and rates of passage" and that these fees were "unfair and injudicious". In March 2024, the ACP published an update on transit slot assignments for vessels of war, auxiliary vessels and other "government-owned" vessels encouraging their operators to participate in the transit system rather than waiting for the ACP to assign them a slot. "Vessels of war, auxiliary vessels, and other government-owned vessels are encouraged to obtain a booking slot through the available booking mechanisms in order to have their transit date guaranteed and minimize the possibility of delays," the ACP said. The ACP points out that these vessels of war are entitled to "expeditious transits" based on the Treaty Concerning Permanent Neutrality and Operation of the Canal and are technically not required to obtain a reservation to be considered for transit. Panama president Jose Raul Mulino on Sunday rejected Trump's threat to retake the canal , which has been under full control of the Central American country since 1999. The canal's rates are established in a public and transparent manner, taking into account market conditions, Mulino said. "Every square meter of the Panama Canal and its adjacent area is Panama's and will continue to be," Mulino said. "The sovereignty and independence of our country are non-negotiable." By Ross Griffith Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Viewpoint: US east coast diesel oversupply to linger

23/12/24

Viewpoint: US east coast diesel oversupply to linger

Houston, 23 December (Argus) — The US Atlantic coast distillate market grappled with higher inventories and flat demand throughout most of 2024, dynamics that are likely to continue in the coming year. In the US Gulf coast, the main supplier of distillates to the Atlantic coast, refinery production has outpaced US domestic distillate demand, saturating the region with product shipped via the Colonial and Plantation pipelines. The US Gulf coast supplies roughly 70pc of all diesel consumed in the US Atlantic coast, with the majority shipped via pipeline. The four-week average for production of ultra-low sulphur distillates — including diesel (ULSD) and heating oil (ULSH) — in the US Gulf coast for the week ended 13 December was 7pc higher than levels from a year earlier. But overall US diesel demand was down by 2.1pc year-over-year and down by 1.9pc on the US Atlantic coast. In addition to soft demand, ultra-low sulphur distillate stocks in PADD 1B — which includes New York, New Jersey, Pennsylvania, Maryland and Delaware — in the week ended 13 December were nearly 36pc above levels a year earlier and 33pc higher than average levels recorded since the beginning of the Russia-Ukraine war in February 2022. Even with demand flat and inventories oversupplied, US refineries have not cut production. Heightened export opportunities, primarily to Europe, have created active trade flows between US Gulf coast diesel refiners and overseas end-user markets. Total distillate exports loading from the US Gulf coast year-to-date 2024 are 10pc higher than in the same period in 2023, with a 1.12mn b/d export average in 2024, compared to 1.02mn b/d loading in 2023. But not all of the additional supply is making it out of the Gulf coast. A 4.9pc increase in production in the Gulf coast means an extra 130,000 b/d of supply, while an increase of 10pc in diesel exports means an extra 100,000 b/d in outflows. Fluctuations in vessel availability and refinery production often prevent all distillate output allocated for export from being shipped from the US Gulf coast. As a result, incremental overproduction of distillates is redirected to the US Atlantic coast, with one market participant describing the Colonial pipeline as a "dumping ground" for excess product. Although economic growth in Europe remains flat, changes in the global supply chain following Russia's invasion of Ukraine are expected to sustain arbitrage opportunities for US producers to ship diesel to Europe. Shipping EN-590 gasoil — the European diesel fuel standard with a 10 ppm sulphur limit rather than the 15 ppm ULSD equivalent used in North America — from the US Gulf coast to Europe is easier than from the US Atlantic coast because of the US Gulf coast's larger refining capacity and export infrastructure, despite the US Atlantic coast's closer proximity to Europe. Although EN-590 and ULSD have similar low-sulfur requirements, EN-590 requires specific blending to meet European standards, a process better supported by US Gulf coast refineries. It does not appear that significant relief is on the horizon in the form of increased domestic demand. Diesel demand traditionally closely traces gross domestic product (GDP). But that correlation has been decoupling in recent years as the US economy has increasingly relied on non-manufacturing services to provide economic growth. Year-over-year GDP in the US grew by 2.8pc at the end of the third quarter of 2024, while diesel demand fell by 2.1pc during the same period, according to US Bureau of Economic Analysis data. While some economists are projecting US GDP to grow around 2.5pc in 2025, this is unlikely to lead to a spike in diesel demand. Continued demographic shifts and population migrations away from the US Northeast to the Sun Belt states also do not support increased demand forecasts. With narrowing refining margins, dwindling demand and sustained higher production, market participants could expect to face challenging economic conditions in 2025. By Cooper Sukaly Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Viewpoint: US tax fight next year crucial for 45Z

23/12/24

Viewpoint: US tax fight next year crucial for 45Z

New York, 23 December (Argus) — A Republican-controlled Congress will decide the fate next year of a federal incentive for low-carbon fuels, setting the stage for a lobbying battle that could make or break existing investment plans. The 45Z tax credit, which offers greater subsidies to fuels that produce fewer emissions, is poised to kick off in January. Biofuel output has boomed during President Joe Biden's term, driven in large part by west coast refiners retrofitting facilities to process lower-carbon fats and oils into renewable diesel. The 45Z tax credit, created by the 2022 Inflation Reduction Act (IRA), was designed to extend that growth. But Republicans will soon control Washington. President-elect Donald Trump has dismissed the IRA as the "Green New Scam", and Republicans on Capitol Hill, who had no role in passing Biden's signature climate legislation, are keen to cut climate spending to offset the steep cost of extending tax cuts from Trump's first term. Biofuels support is a less likely target for repeal than other climate policies, energy lobbyists say. But Republicans have already requested input on 45Z, signaling openness to changes. Republicans plan to use the reconciliation process, which enables them to avoid a Democratic filibuster in the Senate, to extend tax breaks that are scheduled to expire in 2025. "I want to place our industry in a place to make sure that the biofuels tax credit is part of reconciliation," said Kailee Tkacz Buller, president of the National Oilseed Processors Association. But lawmakers "could punt the biofuels discussion if stakeholders aren't aligned." A decade ago, biofuel policy was a simple tug-of-war between the oil and agriculture industries. Now many refiners formerly critical of the Renewable Fuel Standard produce ethanol and advanced biofuels themselves. And the increasingly diverse biofuels industry could complicate efforts to present a united front to Congress. Farm groups worry about carbon intensity scoring hurting crop demand and have lobbied to curtail record-high feedstock imports, to the chagrin of some biorefineries. Those producers are no monolith either: Biodiesel plants often rely more on local vegetable oils, while ethanol producers insist on keeping incentives that do not discriminate by fuel type and some oil majors would back subsidizing fuels co-processed with petroleum. Add airlines into the picture, which want greater incentives for aviation fuels, and marketers frustrated by 45Z shifting subsidies away from blenders — and the threat of fractious negotiations next year becomes clear. There are options for potential compromise, according to an Argus analysis of comments submitted privately to Republicans in the House of Representatives, as well as interviews with energy lobbyists and tax experts. The industry, frustrated by the Biden administration's delays in clarifying 45Z's rules, might welcome legislative changes that limit regulatory discretion regardless of what agency guidance eventually says. And lobbyists have floated various ways to appease agriculture groups without kneecapping biorefineries reliant on imports, including adding domestic content bonuses, imposing stricter requirements for Chinese-origin used cooking oil, and giving preference to close trading partners. Granted, unanimity among lobbyists is hardly a priority for Republican tax-writers. Reaching any consensus in the restive caucus, with just a handful of votes to spare in the House, will be difficult enough. "These types of bills always come to down to what's the most you can do before you start losing enough votes to pass it," said Jeff Navin, cofounder of the clean energy advocacy firm Boundary Stone Partners and a former House and Senate staffer. "Because they can only lose a couple of votes, there's not much more beyond that." And the caucus's goal of cutting spending makes an industry-wide goal — extending the 45Z credit into the 2030s — even more challenging. "It is a hard sell to get the extension right away," said Paul Winters, director of public affairs at Clean Fuels Alliance America. Climate costs Cost concerns also make less likely a simple return to the long-running blenders credit, which offered $1/USG across the board to biomass-based diesel. The US Joint Committee on Taxation in 2022 scored the two-year blenders extension at $5.5bn, while pegging three years of 45Z at less than $3bn. An inconvenient reality for Republicans skeptical of climate change is that 45Z's throttling of subsidies based on carbon intensity makes it more budget-friendly. Lawmakers have other reasons to not ignore emissions. Policies elsewhere, including California's low-carbon fuel standard and Europe's alternative jet fuel mandates, increasingly prioritize sustainability. The US deviating from that focus federally could leave producers with contradictory incentives, making it harder to turn a profit. And companies that have already sunk funds into reducing emissions — such as ethanol producers with heavy investments in carbon capture — want their reward. Incentives with bipartisan buy-in are likely more durable over the long run too. Next time Democrats control Washington, liberals may be more willing to scrap a credit they see as padding the profits of agribusiness — but less so if they see it as helping the US decarbonize. By Cole Martin Tax credit changes 40A Blenders Tax Credit 45Z Producers Tax Credit $1/USG Up to $1/USG for road fuels and up to $1.75/USG for aviation fuels depending on carbon intensity For domestic fuel blenders For domestic fuel producers Imported fuel eligible Imported fuel not eligible Exclusively for biomass-based diesel Fuels that produce no more than 50kg CO2e/mmBTU are eligible Feedstock-agnostic Carbon intensity scoring incentivizes waste over crop feedstocks Co-processed fuels ineligible Co-processed fuels ineligible Administratively simple Requires federal guidance on how to calculate carbon intensities for different feedstocks and fuel pathways Expiring after 2024 Lasts from 2025 through 2027 Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

German heating oil demand dips, diesel stocks reduced

23/12/24

German heating oil demand dips, diesel stocks reduced

Hamburg, 23 December (Argus) — Heating oil consumers in Germany are refraining from purchasing because of high inventories, while importers are lowering their diesel stocks to maintain low bio-blended reserves. Reported volumes of heating oil traded to Argus fell by nearly 35pc last week. Consumers see little need to increase their stocks that, although they have steadily declined, remain higher than the same period in 2023 at 59.6pc, Argus MDX data show. Heating oil traded at about €1.50/100l higher than the previous week, further deterring consumers from last-minute purchases ahead of the Christmas holiday. Importers are striving to keep their diesel stocks minimal until the year's end. Obligated parties will be unable to use any surplus greenhouse gas (GHG) certificates from previous years in 2025 and 2026, so importers that have already met their obligations this year are eager to avoid generating more certificates until January. As a result, demand is low for diesel imports into Germany's northern ports and to storage facilities along the Rhine river. Northern Germany experienced a significant drop in imports in December to the lowest since September, Vortexa data show. But importers and barge operators are preparing for increased import activity in early 2025 to replenish their biodiesel inventories as quickly as possible. Suppliers at the Bayernoil consortium's 215,000 b/d Vohburg-Neustadt refinery in Bavaria are experiencing low stocks, primarily as a result of heightened demand in early December when buyers were active before an increased CO2 levy and the GHG quota take effect on 1 January. By Natalie Müller Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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