Source: Bloomberg
I do not think there is much of a mystery here. The crack spreads are terrible, and there is a mismatch between HO (diesel & heating oil) and RBOB (gasoline). This is apparent in the Noram market, but also apparently in Asia. European spreads are slightly higher, but not much.
On the NYMEX you still have healthy crack margins for HO of $20 per barrel, but in the front 6-months (OCT-MAR) RBOB cracks margins are just $1.50-4.50 per barrel due to lack of demand. That pulls the 321 crack spread down to just $7-10 per barrel in the front months (OCT-MAR) before they recover somewhat to $13-14 a barrrel afterwards. But still well below the $20+ per barrel crack spreads we saw early last year when refiners were outperforming the S&P Energy Index.
Asia Naphtha-Crack falls below $130/T on weak demand
Asian naphtha's premium against Brent crude fell on Thursday on weak buying sentiment, while outright prices edged down on overnight crude losses.
Benchmark open-spec naphtha contracts for second-half September fell to $1,010.00 a tonne, from $1,016.00 a tonne in the previous session.
The crack against Brent for second-half September fell to $129.65 a tonne, down from $131.08 a tonne in Wednesday's session.
The half-month notional differentials were at $4.00 a tonne in contango, compared with $1.50-$2.00 a tonne earlier in the week, reflecting bearish demand for prompt-delivery cargoes.
Taiwan's Formosa Petrochemicals Corp, which was reviewing offers made for its tender to buy up to 510,000 tonnes of open-spec naphtha for delivery between October 2008 and March 2009, had extended the validity of the bids to later in the day.
"Formosa will buy at least 450,000 tonnes from its term tender, but prices are still being reviewed," said a trader involved in the deal.
The private Taiwanese company had contracted in July last year more than 350,000 tonnes of the same grade naphtha for October 2007-December 2008 at a discount of $1.50 a tonne to Japan spot quotes on a cost-and-freight (C&F) basis.
ICE September Brent crude gained 38 cents to $117.38 a barrel.
source:SEOUL, Aug 7 (Reuters)
However, compounding the problem from the refiners' point of view must be the mismatch between HO and RBOB. I am sure they would like to refine more heating oil and less gasoline, but it does not work that way. The oil barrel is divided up into LPG, light distillates, middle distillates and residual fuel oil. Light and middle grades make up 70% of the barrel. Gasoline comes from the light end. Diesel and heating oil come from the middle distillates. They both have to be refined at the same time in roughly the same proportion. And it is lack of demand for gasoline that is pulling down profitability. That is probably why we saw such a large drop in gasoline inventory in the EIA report yesterday. Refiners are letting gasoline inventories run down because their margins are so low.
source: Bloomberg
Apparently the market is not overly alarmed by a lack of refining capacity at the moment. At least that is not reflected in the share prices of refiners or in strong 321 crack margins. And with India bringing a brand new 450.000 bpd refinery online that can process heavier, more sour grades that capacity seems to be expanding now in response to high prices over the past several years.
So either crude prices have a lot farther to fall or increased demand has to materialize against the backdrop of a weak global economy. Personally I think we will see $100 oil before we will see $150 baring any shooting wars or killer hurricanes.
The organized state is a wonderful invention whereby everyone can live at someone else's expense.