European refiners processing more competitive light sweet crudes than North Sea grades, such as WTI and Saharan blend, has created imbalances in the product markets, sources say.
Usually, refiners would limit the volume of these crudes in their runs — even when they are more competitively priced than the alternatives — because the lighter yields can often be less profitable. However, following a period of support for naphtha, refiners have been happy to run the lower-priced grades.
The North Sea Dated Brent differential was assessed by S&P Global Platts at minus 48 cent/b on Sept. 3, compared with WTI FOB USGC being assessed at minus $1/b. Despite WTI typically pricing below Dated Brent crude, lower freight rates have aided the arbitrage even more, sources say.
“[WTI Midland] looks quite competitive compared to North Sea so I would expect buyers to pick some up soon,” a source said.
As a result length has built in the naphtha market, while gasoline has found some support from steady arbitrage opportunities out of Northwest Europe. Prices edged higher because of storms on the US Gulf Coast and West African demand.
The premium of the Platts 10ppm gasoline September swap assessment to its naphtha peer has widened $3 on the week to $17.50/mt on Sept. 3, this is despite gasoline being set to move to a lower-priced winter grade specification in October.
“There are amazing changes. Naphtha is realizing oversupply at the moment, but gasoline is holding quite well,” a source said.
WTI Midland will only produce 5% gasoline in the crude distillation unit cut, compared with 8% for a typical North Sea grade such as Forties. WTI and Saharan Blend also produce much less residual fuel than Forties, 8% and 5%, respectively, compared with 9% according to assay data collated by S&P Global Platts.
Residual fuels are typically run through secondary units such as a hydrocracker to produce distillates or a fluid catalytic cracker to produce gasoline.
Vacuum gasoil, a residual fuel has remained in good supply however, with a divergence forming between high sulfur VGO and low sulfur VGO. HSVGO is typically run into the hydrocracker, with LSVGO run through the FCC.
The premium of CIF NWE LSVGO to HSVGO was assessed at $3.50/mt on Sept. 3, the highest since July 23.
“The gasoil crack is awful so no one wants to be running a hydrocracker hard, whereas [the] gasoline [crack is] marginally more attractive, but barely,” a source said.