Viewpoints 2021: Oil products

Author Chunzi Xu, Deputy Editor

The Covid-19 pandemic’s hit on transportation fuel demand and refining margins pushed refiners to reduce run rates in 2020, as well as prompting a number of closures and conversions, notably in Asia.

The global roll-out of vaccines provides some hope for sustained demand recovery in 2021, but refiners worldwide will continue to need to navigate uncertain and changing physical market conditions. US refiners must stay nimble heading into 2021 and begin to take advantage of rising margins while continuing to cut losses. This includes balancing crude and secondary unit operations, continuing to minimize jet fuel production while maximizing exports to clear Gulf Coast inventories. In Europe, refining margins are likely to remain below breakeven levels until both product demand recovers and bloated inventories are drawn down. Asia’s downstream sector in 2020 was characterized by a strong rebound in Chinese run rates in the second half of the year, reflecting both post-lockdown recovery and new capacity coming online. The year ahead should see new trade flows developing to move excess product out of the Asia-Pacific region, as well as greater reliance on imports for countries like Australia and the Philippines that have recently closed refineries.

Viewpoints

European naphtha robust into 2021
Low supply and firm demand from key export markets will keep European naphtha refining margins firm relative to previous years in 2021, despite a lack of interest from European gasoline blenders early in the new year. By Thomas Warner.

Brazil diesel importers unmotivated for 2021
Brazilian diesel importers will start 2021 unmotivated and deeply uncertain of the market conditions they will face in the coming months. By Gabrielle Moreira.

Brazil gasoline producers weather the crisis
Brazil's independent gasoline producers are coming out of the economic slump induced by the Covid-19 crisis in better shape than importers, who struggle with dim import arbitrage opportunities and Petrobras' reassertion of its leading position in the Brazilian domestic market. By Amance Boutin.

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GCC construction struggling through pandemic
The construction industry in Gulf Co-operation Council (GCC) has suffered greatly this year. The economic shocks of Covid-19 and tumbling oil prices have left demand for construction materials such as rebar weak for most of the year. By Sam Angell.

European green targets to support HVO
Hydrotreated vegetable oil (HVO) prices in northwest Europe will find support from higher blending targets in Europe, but will remain dependent on GHG ticket prices in major markets. By Giulia Squadrin, Florence Schmit, Daniel Mackay and Sophie Barthel.

European gasoline faces severe challenges
Oversupply and demand uncertainty will continue to weigh on the European gasoline market in 2021, with more structural reform likely as producers grapple with greater competition and a regulatory change that could shift transatlantic flows. By George King Cassell.

US truck volumes could rise with vaccine use
The use of new Covid-19 vaccines in the US could result in a loosening of pandemic-related lockdowns in 2021, potentially boosting trucking volumes after containment measures caused a sizable decline in volumes this year. By Jason Metko.

Exports, blending to keep naphtha afloat
Exports and gasoline blending will continue to support US naphtha markets through early 2021, making up for slow refinery demand amid thin reformer margins. By Daphne Tan.

Asia base oil fundamentals to stay tight
Asia-Pacific base oil prices are set to hold firm at least for the first few months of 2021 because of unexpectedly tight supply and strong demand. By Iain Pocock.

Refinery runs to drive US VGO 2021 markets
Planned and unplanned crude unit maintenance kept US vacuum gasoil (VGO) markets tight for much of 2020. The threat of more refinery closures is hovering over the market going into 2021, with another wave of Covid-19 cases leading to fresh lockdowns across the country. By Daphne Tan.

Rainy weather may curb midcon diesel demand
Heavy precipitation forecast for the US midcontinent in the first quarter of 2021 could stymie the region's agricultural activity and slash diesel demand that is already languishing amid the Covid-19 pandemic. By Jared Ainsworth.

NYH gasoline shortage may linger in 2021
New York Harbor prompt gasoline shortages may persist this winter amid poor blend margins and weak domestic arbitrage economics, yet imports will fill part of the supply gap. By Stephanie Crawford.

Bunker demand could rebound after vaccine
Latin American bunker demand could rebound in 2021 as the Covid-19 vaccines are distributed worldwide and pandemic-related lockdowns are eased. By Luis Gronda.

NYH poised to be demand hotspot in 2021
New York Harbor's exacerbated product shortage could provide a much-needed outlet for exporters around the globe next year, aided by relaxed gasoline testing rules in the US. By Chunzi Xu.

LCFS plans could grow biofuels market
Next year could prove to be a transformational period for new clean fuels programs, with lawmakers and regulators poised to take up low-carbon fuel standard (LCFS) proposals across North America. By Jessica Dell.

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More states may join fuel CO2 program
New York and other northeast states have not closed the door on joining a regional cap-and-trade program designed to reduce CO2 emissions from the use of on-road fuels, a prospect that could greatly expand the proposed carbon market. By Michael Ball.

Tight supply to support EU base oil prices
European base oil prices are likely to find support in the early part of 2021 from limited spot supply and a seasonal boost in demand. By Catherine Caulfield and Clara Toellner.

Rising USWC jet production hints at recovery
US west coast jet fuel refiners are starting to reclaim the market share they lost to importers during the Covid-19 pandemic, possibly signaling the beginning of a demand recovery. By Craig Ross.

Sustainable jet fuel supply to grow
Additional US and Canadian clean fuels programs could boost sustainable aviation fuel (SAF) production in the coming years, helping to narrow SAF's premium over conventional jet fuel. But greater support for renewable diesel may temper that growth in the near term. By Jessica Dell.

Asian bitumen market on road to recovery
Asia-Pacific's bitumen prices have come full circle at the close of this exceptional year and the market is poised for a stable-to-firm start in 2021, supported by continued balanced supply conditions and a push for infrastructure growth. By Mahua Chakravarty.

European VGO market could tighten in 2021
Supply of vacuum gasoil (VGO) in Europe could tighten further next year as a result of Russian refinery upgrade programmes, while demand for the alternative feedstock is most likely to depend on the wider oil complex recovery from the Covid-19 pandemic. By Robert Harvey.

Crude runs, vaccine to set 2021 fuel oil
The US residual fuel oil market will continue to see prices recover into the new year if crude runs stay low and a Covid-19 vaccine becomes available to stimulate shipping demand. By Kayla Meyertons.

California leads national ZEV charge
Zero-emission vehicle (ZEV) mandates are becoming an increasingly popular policy instrument to achieve greenhouse gas (GHG) emission reductions in states across the country, and they eventually may become a federal strategy under president-elect Joe Biden's administration. By Solomon Moore.

Asia’s changing refinery, trade landscape
The Asia-Pacific transport fuels market was hit by an unprecedented collapse in demand in 2020, leading to record-low margins amid widespread disruptions to transportation as a result of Covid-19 lockdowns. By Aldric Chew, Jaslyn Ying, Lu Yawen, Sarah Giam.

European diesel faces headwinds in 2021
A successful roll-out of Covid-19 vaccines in Europe is no guarantee of a rapid gasoil price recovery in 2021, mostly because of the vast supply overhang that has built up over 2020. By Harry Riley-Gould.

European bunker spreads to favour scrubbers
Rising 0.5pc sulphur marine fuel prices in Europe in 2021 will give a boost to shipowners that invested in exhaust gas cleaning systems, or scrubbers, to enable the continued use of 3.5pc sulphur product (HSFO). Use of the latter may have hit a ceiling, and demand for the 0.5pc product, which in 2020 became the most popular marine fuel, will largely be dictated by Covid-19 developments. By George Collard.

USAC jet margins poised to rebound in 2021
US Atlantic coast jet fuel margins are poised to rebound in 2021, as the roll out of Covid-19 vaccines and general quarantine fatigue increases air travel despite health officials urging otherwise. By Matthew Keever.

USGC fuel arbitrage opportunities to grow
Arbitrage opportunities to ship gasoline out of the US Gulf coast are expected to rise in 2021 from 2020's lows as domestic and overseas demand is expected to recover from the Covid-19 devastation with newly approved vaccines. By Paul Dahlgren.

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European jet slow to recover
Pressure on northwest European jet fuel margins is likely to persist into the new year, with the lifting of travel restrictions and a full reopening of borders heavily dependent on the pace at which Covid-19 vaccines are distributed and the public's appetite to return to air travel. By Florence Schmit.

US Gulf diesel spot demand lower into 2021
US Gulf coast diesel spot markets will face downward demand pressure in early 2021 as movements to the Atlantic coast are likely to remain sluggish. By Wendy Dulaney.

US demand to drive European HSFO margins
US refinery demand for heavy residual feedstocks will support European high-sulphur fuel oil (HSFO) prices in 2021, but developments in the Covid-19 pandemic, changes in US sanctions policy and in Opec+ production cuts may prompt changes in fuel oil trade routes. By Enes Tunagur.

Asian ethylene sector braces for new supply
The Asian ethylene market is preparing for a challenging year, with 11 ethylene crackers expected to come on line in 2021 — eight in China, two in South Korea and one in southeast Asia. But new derivative capacity may keep merchant ethylene supply balanced.

European bitumen premiums to rise
Measures brought in to curb the spread of Covid-19 have changed Europe's refinery landscape, permanently in some cases, but the regional bitumen market has weathered the storm better than many other oil products. By Jonathan Weston.

European refiners face tough 2021
European refining margins are likely to remain below breakeven levels until oil product demand not only recovers, but draws down bloated inventories. By Benedict George.

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