Dissecting the oil market headlines from London’s IE Week

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John Morley:

Hello and welcome to the Platts Oil Markets Podcast by S&P Global Energy. I'm John Morley. Now, this week's episode is always an important one for us, and that's because it allows us to reflect on one of the highlights of the oil market calendar, International Energy Week or IE Week. The event happens each year in London in February, and gives the entire oil market and the broader energy market the chance to come together and discuss what really are the key themes driving fundamentals, prices and benchmarks, and what are going to be the main trends for us to monitor in the coming year.

As you can imagine, there's plenty to discuss this year, and to do so today, I'm delighted to be joined by Emma Kettley and Gary Clark, who are respectively responsible for our EMEA crude and fuel and clean refined products pricing coverage. Now, Emma, if I can start with you, geopolitics have been on everyone's lips in recent times. There's a lot going on at the moment, with Venezuelan oil coming back into the wider international markets, the U.S.-Iranian tension in the Middle East, and of course the most recent set of EU sanctions on Russia. What are the things that have stood out to you over the past week as you've been talking to people around IE Week?

Emma Kettley:

Absolutely. Thank you, John. The general theme of the week in both the crude and fuel markets has been broader geopolitics changing flows and the impact of regulation on these prices, whether that's environmental regulation or the sanctions that you've mentioned. And starting with the geopolitics and particularly in the crude market, it's looking at that balance of the impact of headlines versus genuine supply disruption or changes in demand on those prices. We started 2026 with a real case of tight supply with the disruption in CPC and the loadings that were lost from the European market, and a lot of prompt demand then appeared, which really supported prices for grades in the North Sea, for example.

Now we're coming into a phase where that production is back. The next loading program is looking at full length. So now the market is looking at how are those prices going to be impacted. And as you mentioned, the tensions in Iran, how that could impact flows and also what's going to happen with the Venezuelan crude. We've already heard of a few cargoes coming over to Europe of crude oil from Venezuela, and how is that going to impact the demand for already existing grades in Europe that fit that sort of medium sour quality?

John Morley:

Yeah, definitely. Gary, geopolitics often tends to crude oil first, but are you seeing any impacts on the refined products markets of these geopolitical events that we're speaking about? I guess we can talk about Venezuela, first of all, any kind of impact on refined products as a result of some of that oil coming back to markets.

Gary Clark:

Absolutely. I think through the conversations that we had with market participants throughout IE Week, geopolitics was first and foremost in all of those discussions. I think you mentioned Venezuela, I think with respect to clean refined products, the question there is how's it going to affect naphtha balances in the Atlantic Basin, so naphtha is used as a heavy crude diluent and in many discussions that kind of initially potentially the naphtha market could be affected with naphtha going to Venezuela, but there was also some expectations that because that naphtha will then be released in the refining process when that crude then is run by U.S. Gulf Coast refineries, it's kind of a zero sum game, right? Because the naphtha is used as a diluent, but then comes out in the refining process anyway on that crude process, so it shouldn't have a big impact on balances.

Emma, you touched on the theme, and John, of a risk premia, right? I think that's certainly been a big topic for us in Europe. So I moderated a panel on fuels at S&P Global Energies Forum on the first day of IE Week, and Karim Fawaz on the panel looking at his short-term forecasts for refined products, and he was talking about how risk premia has been traditionally associated with crude oil markets, right? But now we're seeing it in refined product markets as well, in particular diesel markets. So ICE Low Sulphur Gasoil Futures, the primary paper market or futures market for diesel in Europe.

And that's been prices that have been impacted by tensions with Iran or peace negotiations over Russia, Ukraine, for example, and to date that hasn't materialized in an actual supply disruption, but it's less led to disconnects between pricing in the paper market and fairly weak fundamentals at time within the physical cargo or barge markets for diesel within Europe. And some market participants commented that that's made hedging, for instance, of physical cargoes within Europe difficult because of that disconnect between paper and physical fundamentals.

John Morley:

Yeah, definitely. And such, an important part of all commodities markets and certainly oil markets, is the cost it takes to transport oil from one location to another. That can be done on pipeline or via ship and freight costs a really important part of these markets. Emma, have you found freight to be in the news at the moment? Is that affecting crude oil markets in any way?

Emma Kettley:

Definitely affecting them. We say geopolitics is one of the key themes that we've had in every meeting. Freight rates are also in there as a real top talking point in every meeting and every discussion that we've had, and indeed on the panels at our London Energy Forum, particularly for those larger vessels that are used for the longer haul journeys, for example, taking Nigeria to the East or even taking grades like Russian Urals to Asia or to India, and what that has resulted in is a significant decrease in the FOB differentials, the differentials for a buyer taking their own vessel and collecting the crude and taking it to their destination. Naturally, those are very susceptible to changes in freight rates.

So the West African market on the crude side at least is under pressure because that is looking for an outlet to either that's Europe or to Asia. On the flip side of that, you see delivered grades get more expensive. Those other grades landing in Europe that are maybe competing with, whether that's the Mediterranean or the North Sea grades, they are maybe getting less competitive. So it's a huge question because it impacts those full supply and demand balances essentially. You were talking about it on naphtha, but we're talking about it on the crude side and really seeing those flows potentially start to shift, or at least trading cycles stalling while they're awaiting an outlet for some of those barrels.

John Morley:

Yeah. Gary, do you want to comment on that point?

Gary Clark:

Absolutely. I think on freight, I'll echo a lot of what Emma was saying now with respect to clean refined products, freight rates have been generally structurally elevated because Europe's net short of diesel, jet fuel, and we get our diesel and jet fuel from places further away nowadays such as the U.S., the Middle East, as opposed to say Russia, for example.

Emma Kettley:

Yeah.

Gary Clark:

And now we see with the new EU's 18th sanctions package on oil, on oil products processed using Russian crude, that potentially takes out the question out of the market for Europe diesel and jet fuel produced in say, India, Turkey, potentially China. So flows are reshuffling, and that has the effect of affecting freight rates as well, which then obviously feeds through to refined products prices.

John Morley:

Yeah, definitely. Now, Emma, a couple of minutes ago mentioned West Africa in the context of crude, but of course West Africa in the context of both crude and refined products has been such a key theme over the last couple of years with the ongoing ramp up of the Dangote refinery. Obviously Gary, for you and your team, this has been a major focus over the last year or so. What have you been hearing over the IE Week on everything that's happening in the WAF refined product space?

Gary Clark:

Yeah, I mean, look, the Dangote refinery is a massive focus for everybody in the market. The West African market is so linked to the European market, so the Dangote refinery yields a lot of gasoline. West Africa used to be one of the major shorts for gasoline, so Europe's long gasoline used to export off gasoline into West Africa, but now that refinery creates a bit of a buffer for European gasoline supply. At the same time, there's still imports going into the region from Europe, not just of gasoline but diesel. But the question is how is this market going to evolve as the refinery continues to ramp up production.

The refinery has its own marketing strategy in terms of how they're pricing its refined products, imports obviously coming from Europe priced differently as well. So there's risk in that region for people who want to buy and sell refined products depending on prices that they can get for those refined products as well. And that's a topic of conversation that came up a lot with traders who operate in that region.

John Morley:

Yeah, definitely. And the Dangote refinery course is also an important consideration for people looking at crude oil because it's a new important buyer in the market. So Dangote is taking cargoes from places like the U.S. of crudes, like WTI Midland, but also a lot of Nigerian crudes as well. So that's something that I think all the markets are paying attention to. Now, Emma, if I can come back to you, a big theme in shipping markets and bunkering markets is always regulation. We had IMO 2020 is one of the biggest previous regulations in the market, and that can shape the type of bunker fuel that people purchase. Have we seen any regulatory changes over the past few months that are may be reshaping or change in bunkering markets in any way?

Emma Kettley:

The Red 3 regulation is a big topic of conversation in the fuel markets, and we are seeing the impact of that on bunker fuel prices at the moment. We are seeing a scenario where the regulation is being implemented at different periods of time in different countries in Northwest Europe. At the moment in Rotterdam, we are seeing suppliers of bunker fuel pricing in their expectation of their cost of purchasing certificates to cover any shortfalls in the sale of renewable fuels.

And what that is essentially resulting in is where Rotterdam and Antwerp would often be trading typically at a premium to each other on the bunker fuel side of things. We are seeing a widening spread between those two regions. Now, what this is leading to as a lot of questions in the market of how are these demand hubs going to then settle out? Typically, we'd expect a lot of demand in Rotterdam. With prices on the up, we are hearing demand is moving away, maybe some to Antwerp, some to Hamburg, but these are areas that are also anticipating the introduction of this regulation. So these are only short-term solutions. So the flows are going to change to a certain extent, right?

There's still shorts in refineries in Rotterdam. People are going to have to bunker at these ports sometimes, but those who have a choice, there are a lot of questions around where is that going to land, and does that price impact feed from the bunker market into that more wholesale barge market. We're yet to see that. At the moment, we've seen a widespread between bunker fuel and barges. But again, that's something the market is keeping a really close eye on.

Gary Clark:

Yeah. I'd also add to that, Emma mentioned the Red 3 EU directive, we're also hearing that people look at the diesel demand profile in Europe, which is demand weakening in Europe as a whole, but that's also being exacerbated by regulations such as Red 3, for instance, with growing demand of HVO in Germany, for example. And also last year as well, we saw sustainable aviation fuel mandated for the first time within the EU, which obviously bites a little bit into conventional fossil jet fuel demand, but it's gone fairly unnoticed, I would argue as of last year at least, given that the demand profile for aviation and jet fuel use in Europe is very strong.

John Morley:

Okay, great. Thanks again to Emma and Gary for joining me for a very interesting discussion today. If you enjoy the Oil Markets Podcast, then you'll definitely enjoy attending S&P Global Energy CERAWeek conference this year. It's widely recognized as the foremost annual gathering in the energy sector. This premier event will convene in Houston from March 23rd to March 27th. You'll get insights from a wide array of C-suite executives, energy ministers, and thought leaders, not to mention plenty of networking opportunities with more than 10,000 participants attending from over 2,350 companies. For more information, visit the events page on our website, spglobal.com. That's spglobal.com.