London — Europe's physical oil markets have yet to react in a big way to ongoing industrial action at French refineries and oil depots, though the disruptions were high on traders' radar Tuesday.
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Protests against changes in French labor law, which saw refineries start halting units over the weekend, was spreading Tuesday, with ports joining the action sooner than expected, sources said.
The price of crude oil and refined products in Europe Tuesday was little changed from a week ago when the first disruptions to the supply chain in France started being felt.
The action by workers comes at the end of the refinery maintenance season in France and the rest of Europe, when demand for crude from refiners and output of oil products from their plants are both lower.
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France is the world's largest importer of ultra low sulfur diesel and one of the largest consumers in Europe. Any shortfall in refinery production will need to be covered in the spot market and traders said the impact would be felt there first.
"The European football championship starts on June 10 in France and we do not think that the government will allow for all retail [road fuel] stations to be empty for that event," analysts at Petromatrix said in a note.
"There will, therefore, likely be an import pull for diesel cargoes during June and July."
EUROPEAN DIESEL PRICES SEE LIMITED INCREASE
Spot demand for diesel into France is being temporarily bolstered by the action at refineries, but the effect on spot prices has been limited.
June ICE low sulfur gasoil futures were assessed in a $1/mt contango to July by Platts Monday.
That was close to its highest level in a year, with traders saying the rise in recent weeks was due to ongoing maintenance at European refineries and had changed little in recent days as news of the strikes emerged.
CIF Northwest European cargo premiums to front-month ICE low sulfur gasoil futures fell 75 cents/mt to $2.75/mt Monday.
Analysts at Commerzbank said diesel and gasoil cracks had risen in the past few days on the back of the French industrial action. "Within a week, the gasoil-Brent crack spread has widened by $2/b to $11/b. The last time it was this high was at the beginning of December 2015."
"We attribute the relative increase in the price of gasoil to strikes in French oil terminals, which have forced refineries to scale back their production and have already created supply bottlenecks," they said.
French group Total bought a 20,000 mt cargo of diesel from Glencore in the Platts Market on Close assessment process Monday.
Traders said Total was looking to compensate for the shortfall of diesel production and had been looking for volumes during the day.
"It must be related...they paid Platts CIF Northwest European cargoes minus $2/mt. It is not a bad price," said one trader.
Total was not available for comment.
Some sources referenced already strong diesel premiums as the cause for an overall muted reaction in the spot market, with no sign the strikes were immediately tightening fundamentals.
The situation has been confused as the blockage of some oil depots and import terminals, not just refineries, has complicated the task of sourcing additional supplies in the international market.
It is also possible consumers are changing their behaviour by resorting to other means of transportation or simply reducing their demand to keep fuel supplies intact, in turn mean consumption levels could fall.
"Are strikes having an impact? Yes. But what kind of impact? That is the question. Is it having a real impact? No," said one consumer. "Is it having a psychological impact? Definitely. Everyone is expecting the worst," he said.
Another source said sites "have not been blocked for long enough [to see a real impact] and they have started unblocking some. There is no extra demand. No impact on the swaps [market] side either. It has been quite stable."
Liquidity in the diesel swaps market was equally unshaken Tuesday amid the uncertainty surrounding the exact impact of the strikes.
Analysts at Petromatrix said the effect of the action could be felt over the course of June and July rather than immediately.
"Once the strikes are over, there should be some supportive impact on the cargo market as inland stocks will need to be rebuilt," they said in a note.
URALS CRUDE PRICES WEAKEN
French refineries are large consumers of Urals crude from Russia and traders said prices had fallen a touch in recent days.
A contango structure in the market that emerged over the past three trading sessions steepened Monday, suggesting a weaker market at the prompt.
In the Urals NWE CFD market, spreads widened over the past couple of days, a source said.
While traders said other factors have contributed to the weakness in the Northwest European market, including a closed arbitrage to the Mediterranean, sources said there has been evidence crude buyers in France might be looking to re-optimize their volumes as the strike moves into its second week.
"Refiners are checking opportunities to re-optimize. But not knowing the length of the strike makes their job difficult," said a crude trader.
In the Platts Market on Close assessment process Monday, Total was looking to sell Urals crude cargoes for a second straight day, offering a 100,000 mt Urals cargo, ex-Primorsk/Ust-Luga, loading June 3-7 CFR basis Rotterdam down to Dated Brent minus $2.85/b without attracting a buyer.
In refined product markets other than diesel, traders said fundamentals had been largely unaffected, even if the price of some oil products rose, sometimes for other reasons.
Fuel oil fundamentals and prices had been little affected, said traders, while jet fuel premiums have been stable in the last week.
In gasoline, naphtha and light petroleum gases, prices rose Monday and again Tuesday, with traders saying fundamentals other than the industrial action in France were also at play.
--Edited by Dan Lalor, email@example.com