Friday, April 8, 2011

European Demand Helping Heating Oil Higher - Apr 8

European Demand Helping Heating Oil Trade Higher
April 8th, 2011

Following last month’s devastating earthquake and ensuing tsunami in Japan, traders have been busy figuring out how it will affect commodity markets.  Energy traders have certainly found a profitable opportunity in heating oil. 

Lost Japanese Exports

The March 11th earthquake forced the closure of six refineries in Japan, with a combined refining capacity of 958,500 barrels per day.  Despite Japan’s reliance on foreign crude oil, its well-developed refinery infrastructure allowed it to export about 150,000 barrels of diesel and gasoil per day.  Due to the refinery outages however, exports have for all intents stopped.  This has helped Asian benchmark prices stage their longest rally since 1991.

Lost Libyan Crude

Libyan crude oil is of a very high quality, and is easily refined into diesel fuel, most of which is sold to Europe.  Unlike the U.S., where last year only 2 percent of new vehicles sold run on diesel, about 46 percent of new European vehicles use the fuel.  The reduction in supply has helped push the price of the fuel steadily higher, and the premium over the U.S. price is increasing as well.  On March 15th, the premium hit an interim high of $47.37 per tonne (about 7.35 barrels), compared to the average of $19.13 per tonne over the past year.  As a result, U.S. traders including JPMorgan, Morgan Stanley, and Shell have been ramping up their exports to Europe, helping to push prices higher here in North America.  In February, 11 tankers were sent to Europe, carrying 483,000 tonnes; March saw that volume nearly double to 20 tankers carrying about 800,000 tonnes. 

-Jaime Macrae, CIM
Account Executive, Friedberg Mercantile Group

No comments:

Post a Comment