Concerns grow for European product demand over rising crude prices

London (Quantum Commodity Intelligence) - Refining margins for the main oil products in Europe have ended the week little changed, growing concerns the Brent rally may erode demand.

Premium unleaded gasoline cracks for barges in ARA, diesel, and jet have edged sideways since mid-May, Quantum data shows.

High-sulfur fuel oil and marine fuel (0.5% sulfur) barge cracks have been climbing, but only to correct the long decline from March after a sharp drop in European oil stocks in February.  

"Stock levels look quite supportive and at some stage this year it will suddenly kick in, but if refiners globally over do it too quickly, the market is just going to sink," one trader said.

They added: "What concerns me is the retail price, with crude going up and up, and how that is going to impact demand now."

Brent surged past $72/b Friday to take its weekly gain to 5% before retracing after US payroll data emerged.

Pump prices for UK gasoline have reached the highest level since August 2019.

Refiners have been playing a cat and mouse game to maintain the supply and demand balance as the world comes out of lockdowns and returns to normal.

In the EU-15 countries plus Norway, refiners still only operated at around 72.5% of their nameplate capacity in April, up around 2 percentage points in May, according to analysts, citing Euroilstock data.

European gasoline cracks saw an uptick in early May, just before the shutdown of the Colonial pipeline in the US, but slipped back to its late April range when the pipeline flows resumed and have flatlined since.

Cracks for premium unleaded gasoline barges in AR peaked at $11.59/b on May 5 but have been hovering either side of $10/b since May 14.

From a low level in April, diesel and jet barge cracks ramped higher last month until May 20, but neither product has yet to recover to those levels again.

With the UK adding Portugal to its amber list for travel restrictions again, cracks for jet fuel in north Europe edged lower again Friday.

"There is plenty of spare capacity in refining, and the temptation is to increase rates, but if prices are too high, they may overshoot too quickly," said one source.