Transatlantic oil trade has dodged direct US tariffs, but refined product prices in Europe are still reeling from the fallout, as the deteriorating outlook for the global economy weighs on demand prospects.
European product prices followed crude values lower in the wake of President Donald Trump's "Liberation Day" tariff announcement on 2 April. And by the following week, most prices had dipped to their lowest levels since the late Covid period of 2021.
European naphtha was the cheapest since January 2021, gasoline since April 2021 and diesel and jet fuel since August 2021. High-sulphur fuel oil (HSFO) bucked the trend but was still the lowest since March 2023.
Prices have since recovered to some extent, helped by Trump's 9 April decision to pause some of the levies for 90 days, but they remain below pre-tariff levels.
Trump's trade policy has had a less dramatic effect on crack spreads than outright prices, because crude values have also fallen sharply. Diesel cracks in Europe have hit a five-month low since the tariffs were announced, while HSFO and naphtha cracks have touched three-month lows. The impact on jet fuel and gasoline cracks was less severe.
After two weeks of tariff announcements, partial reversals and retaliatory levies, Trump's position as of 15 April is a 10pc blanket tariff on goods coming into the US, except for imports from China which face a 145pc levy. Oil and other energy products are among the various exemptions. China has retaliated with 125pc levies on all imports from the US, including oil.
In theory, the products most vulnerable to the trade war are diesel, residual fuel oil, naphtha and LPG, which are used in trucking, shipping and for petrochemical production, respectively, all instrumental in manufacturing a wide range of goods that are subject to tariffs.
Demand for jet fuel and gasoline will be relatively shielded, as those fuels mainly serve consumer travel, although the former could see a hit from declining air freight volumes. Demand for jet and gasoline typically peak between May and August, so margins could rally in the coming weeks, in contrast to other products.
The biggest turbulence in refined product markets is likely to be related to US-China LPG trade. China's tariff on imports from the US includes more than 800,000 b/d of LPG. That US LPG could now swing towards Europe, among other non-China destinations, and accordingly European LPG prices have fallen further than any other product in recent days. Large propane cargoes at the Amsterdam-Rotterdam-Antwerp (ARA) hub shed more than a third of their value in the week to 9 April.
Chinese petrochemical producers will probably try to replace some of the US LPG with supplies from elsewhere, but demand for Chinese petrochemicals and plastics will drop as a result of Trump's 145pc tariffs, so these companies may simply wind down production. Meanwhile, European petrochemical prices could be hit by an influx of Chinese petrochemicals seeking non-US buyers.
Heavy naphtha could rally relative to light naphtha and LPG, because the former is mostly used to make gasoline while the latter is mainly used for petrochemicals production. And intermediate refinery feedstocks such as vacuum gasoil now look even more expensive relative to finished fuels than they did earlier in the year, so could be set for a fall.
