European outright refined products sink to fresh multi-year lows on bearish cocktail

New York — European refined product markets on Monday fell to their lowest levels in three years, and for some considerably more, as the Russia-Saudi price war and coronavirus concerns weighed heavily on demand.

Products took their lead from crude. S&P Global Platts assessed Dated Brent at $27.945/b Monday, down $3.90/b on the day.

A price war between Russia and Saudi Arabia continues and OPEC+ canceled a meeting scheduled for Wednesday, signaling the likelihood that the global crude market will be flooded with crude come April.

Saudi Arabia slashed its official selling prices last week; in response, others such as Abu Dhabi's ADNOC, Iraq's SOMO and Kuwait's KPC all reduced their OSPs and many market participants expect Nigerian OSPs to follow suit.

LPG

The propane CIF NWE large cargo fell to $194.25/mt Monday, the lowest flat price since March 2002 when the market was assessed at $190.50/mt. Similarly, the butane CIF NWE large cargo was assessed at $185.00/mt, the lowest value since May 2003.

In the Mediterranean, the situation is similar to Northwest Europe, with the FOB Lavera coasters assessed at $242/mt, the lowest level since August 2003, when the market was assessed at $240/mt.

The spread of COVID-19 has bought a degree of uncertainty to the LPG market in Europe as petrochemical crackers consider production cuts and seasonal heating demand begins to subside moving into springtime.

"I think there is a bit more downside in propane still," a market source said.

Naphtha

Platts Naphtha CIF NWE cargo was assessed at $209/mt Monday, down $47/mt since Friday and the lowest in 17 years, according to Platts data. European naphtha has lost about 30% in value in a week and 50% since the beginning of the month, on decreased demand for gasoline blending and the uncertainty related to the coronavirus pandemic and global economy, sources said.

Many sellers appeared extremely bearish while some buyers could benefit from the lower flat price provided there was sufficient storage capacity, sources said.

"As buyers we did not do too bad during the last price fluctuation overall, but might start facing difficulties selling our products if market conditions do not improve soon," a source said.

Gasoline

The physical Platts gasoline Eurobob FOB basis AR barge flat price also saw a record low Monday on an extreme pressure sell-off as nations continue to adopt measures that will curb driving demand.

Platts Gasoline Eurobob barge was assessed at $185.50/mt, down from $231.75/mt Friday.

"Winter [gasoline] has little to no value anymore, I sold some last week at a steep discount," a source said.

Diesel

FOB ARA barges of ultra-low sulphur diesel slumped $30/mt on the day to a four-year low of $306.75/mt Monday. This is the lowest price of ULSD barges since February 25, 2016, when they were assessed at $304.25/mt, Platts data shows.

"There is less spot demand for diesel cargoes in Europe but I haven't seen any cargo getting cancelled; there is a contango so that helps" a trader said Tuesday, referring to storage demand that appeared last week amid the deepening contango in the paper market. "People will do everything they can to put as much jet into diesel as possible."

The market is in a widening contango and the outlook is bearish as more countries recommend social distancing and an increasing numbers apply a lockdown on both sides of the Atlantic, which has started to dent demand for the road fuel.

Jet

The jet CIF NWE cargo flat price was $292.25/mt Monday, its lowest level since January 2016 as some of the world's biggest airlines slash more than 70% of their flights for the coming months, and jet fuel demand, which accounts for almost 8% of total oil demand, takes an unprecedented hit.

"It doesn't look like the physical [jet] market can be resilient much longer. People are trying to figure it out, there will be dramatic changes," said a jet fuel trader. "I think there is still storage left, people haven't filled yet but they will... storage demand is the only demand left."

In terms of dollars per barrel, FOB FARAG jet barges fell to their lowest level in seven years against FOB ARA ULSD barges, with jet barges assessed at a $5.05/b discount to ULSD barges, down from a $1.82/b discount Friday. This represents the lowest value of European jet versus diesel since November 7, 2012, when FOB FARAG jet barges were assessed at a discount of $5.39/b to FOB ARA ULSD barges, Platts data shows.

VGO

Vacuum gasoil products in Europe saw falls of $27.00/mt for both products Monday, to $235.50/mt and $222.00/mt for low sulfur and high sulfur vacuum gas oil respectively. It was last lower on March 1, 2016, when the products were assessed at $233.00/mt and $221.00/mt. With refinery margins including gasoline cracks tumbling to unprecedented levels, this will likely have a significant impact on demand for both products in the coming weeks. "Everything is crashing," a European trader said. "VGO should be no different."

Fuel oil

The outright price for 0.5% FOB Rotterdam fuel oil barges plunged to a new all-time low of $218.00/mt Monday, while 3.5% FOB Rotterdam barges dropped to a more than four-year low of $123.250/mt.

"Everything that is happening with coronavirus is a struggle over all commodity markets," a fuel oil source said. "The struggle has been seen for all products. The contango on VLSFO is also related to the weakness in Brent, the global market is very oversupplied on 0.5% marine fuel oil."

With the implementation of the IMO sulfur cap, the fuel oil market has experienced a volatile year so far. Prices for the now compliant 0.5% marine fuel oil have plummeted 62% since January 3, while HSFO dropped more than 74% since January 6.

At the start of the year, high sulfur fuel oil experienced unexpected relative support compared with its lower sulfur counterpart, as a result of limited availability and a new-found demand outlet as a Coker feedstock. Since the start of March, however, the product has halved in price, falling 11.8% in just one day on Monday. Sources continue to cite limited availability for the product but note demand for the product is falling.