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Market Movers Europe


Market Movers Europe, Sep 4-8: Harvey pushes European crack spreads to two year highs

With Marcel Goldenberg, Senior Pricing Specialist, EMEA Crude Oil

September 04, 2017 08:37:42 EST (3:06)

In the European gasoline market, prices soared by more than 50% last week as traders rushed cargoes across the Atlantic in response to supply problems caused by Tropical Storm Harvey.


Deliveries of petrochemical products from the US into Europe this month are also under a question mark, with at least 13 major petrochemical sites shut down in the US Gulf Coast region and supplies of many products under force majeure.


Meanwhile, in metals, the European steel coil market is bullish as producers return from their summer holidays. Mills are likely to seek an extra Eur20-40/metric ton after other markets -- primarily China -- spiked.


Finally, in UK electricity, forward prices for September have been rising ahead of reduced gas and coal plant availability and, as this graph shows, September traded above October. While September is braced for reduced availability, October is the start of a new era under the new UK Capacity Mechanism.


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Video Transcript


In this week’s highlights: Tropical Storm Harvey has pushed European gasoline crack spreads to their highest level in over two years; the European flat steel market is expected to be bullish; and the UK power market is braced for a squeeze from a new capacity mechanism.


In the European gasoline market, prices soared by more than 50% last week as traders rushed cargoes across the Atlantic in response to supply problems caused by Tropical Storm Harvey.


Up to a fifth of total US refining production is offline, storage depots are under water and key pipelines across the region have been switched off.


European gasoline crack spreads, which indicate the relative value of the refined product against the crude from which it is made, are at their highest level in over two years.


This week, the market is expected to be keeping a close eye on how quickly the US supply network gets back up and running.


Market participants will also be closely following the progress of Hurricane Irma, a Category 3 storm that is expected to hit the Caribbean and potentially the US, which could make matters worse for the oil industry in the wider area.


Deliveries of petrochemical products from the US into Europe this month are also under a question mark, with at least 13 major petrochemical sites shut down in the US Gulf Coast region and supplies of many products under force majeure.


Our social media question this week is: What will be the impact on the oil industry of Hurricane Irma? Tweet us your predictions using the hashtag #PlattsMM.


Turning to metals, the European steel coil market is bullish as producers return from their summer holidays. Mills are likely to seek an extra Eur20-40/metric ton after other markets – primarily China –spiked.


Some southern European producers have already said they will target around Eur530/metric ton, while northwest European mills have even said they would refuse to sell below this level.


Moreover, in the UK, an upgrade at Tata Steel’s hot strip mill could tighten availability even further. In the UK electricity market, all eyes this week will be on the prompt.


Forward prices for September have been rising ahead of reduced gas and coal plant availability and, as this graph shows, September traded above October. While September is braced for reduced availability, October is the start of a new era under the new UK Capacity Mechanism.


The mechanism pays power stations to be available, but traders say they have always feared this would blunt the price signal, and here is early evidence of just that.


Finally, Russian oil and gas officials together with President Vladimir Putin will push for closer energy ties with Asia this week.


Putin will lead a delegation to China for talks on gas supply, and on Wednesday Vladivostok will host the Eastern Economic Forum.


Russia wants to attract fresh Asian investment and strengthen its share of Asian markets to counteract US sanctions and fill the void of Asia’s unstoppable energy demand.


Thanks for kicking off your Monday with us and have a great week ahead.





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