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---------------------- Forwarded by Jeffrey A Shankman/HOU/ECT on 12/18/2000 
08:04 AM ---------------------------
   
	
	
	From:  Doug Leach                           12/18/2000 07:19 AM
	

To: Ross Koller/LON/ECT@ECT, Chris Mahoney/LON/ECT@ECT, David J 
Botchlett/HOU/ECT@ECT, John L Nowlan/HOU/ECT@ECT
cc: Jeffrey A Shankman/HOU/ECT@ECT 
Subject: Refined Products Line--European Markets - CERA Alert: December 15 , 
2000


---------------------- Forwarded by Doug Leach/HOU/ECT on 12/18/2000 07:18 AM 
---------------------------


"Webmaster@cera.com" <webmaster on 12/15/2000 10:20:28 AM
To: 
cc:  
Subject: Refined Products Line--European Markets - CERA Alert: December 15 , 
2000




CERA Alert: December 15, 2000 

Title: Refined Products Line--European Markets 
CERA Knowledge Areas: Refined Products 

Rotterdam Differentials 
* The fall in product prices that started in late October-after a brief surge 
during heightened market tensions over Middle East unrest-continued in 
November. Average differentials for all products over crude fell, with those 
for gasoline falling particularly strongly in line with very weak reported 
demand. FOB ARA barges for premium unleaded gasoline over Dated Brent 
averaged $1.51 per barrel, compared with $5.86 per barrel in October.

* Jet/kerosene barge premiums over Dated Brent slipped by over $2.00 per 
barrel in November from October's average, but because of current market 
sentiment favoring prompt production of heating oil, they remained high at an 
average of $10.98 per barrel. Jet values had enjoyed the largest increase of 
all products during October's Middle East-related price increases; 
consequently jet/kerosene's premium over heating oil narrowed in November 
following an easing of tensions, averaging the month at $2.53 per barrel, 
compared with $3.29 per barrel over heating oil in October. 

* Despite falling by $1.33 per barrel from October's level, average 0.2% 
sulfur gasoil barge values remained very strong in November, averaging $8.45 
per barrel over Dated Brent. High end-user prices for heating oil remain a 
strong deterrent to demand, however; provisional data for German heating oil 
demand in November show a fall of over 10 percent from November 1999 levels 
(to an average of 608,000 barrels per day [bd]).

* Discounts of low sulfur (1.0%) heavy fuel oil to Dated Brent widened again 
in November, averaging $6.74 per barrel. As was discussed last month, much of 
the reason for their improvement in October was because of concerns over the 
availability in Russian exports: toward the end of October and into November, 
however, such concerns subsided, leading to a widening of discounts. High 
sulfur (3.5%) fuel oil discounts widened by $3.26 per barrel to an average of 
$9.61 per barrel to Dated Brent.

Refinery Margins 
* Margins fell back considerably after the very high levels recorded in 
October, but still remained quite strong and reflect the current market 
sentiment of favoring maximum refinery production, especially of middle 
distillates. High jet/kerosene and gasoil/heating oil values kept margins 
buoyant, but falling gasoline premiums and widening heavy fuel oil discounts 
were the major downward influences. 

* Using CERA's illustrative yield patterns, gross margins for 
simple/hydroskimming refineries in the ARA region fell by $2.80 per barrel 
over Dated Brent from October's level, averaging $1.19 per barrel in 
November. The deterioration in heavy fuel oil discounts accounted for half of 
the decline, with the large drop in gasoline values contributing $0.87 per 
barrel to the fall.

* The drop in gasoline premiums was the principal reason for the fall in ARA 
complex/cracking refineries. Using CERA's illustrative yield patterns, gross 
margins averaged $3.30 per barrel in November; this is $2.93 per barrel lower 
than October's average, of which $1.74 is attributable to the poorer gasoline 
premiums, with the remainder of the difference attributable equally to the 
declines in middle distillates and residual fuel oil values. 

European Inventories and Refinery Operations* 

* EU and Norwegian refinery crude intakes rose by a further 168,000 bd in 
November, averaging 12.6 million barrels per day (mbd), again an indication 
of refiners seeking to maximizing runs given the current favorable margins. 
Output data for individual products are not yet available, but the high crude 
runs and middle distillate margins would indicate that November was another 
month of very high jet/kerosene and gasoil production.

* Despite the strong crude runs, primary EU plus Norway crude oil inventories 
did increase in November, ending the month 9 million barrels higher than 
October's level (which was revised downward) at 426.5 million barrels. There 
has been a small but consistent three-month contango in the Brent futures 
market, placing a small premium on forward months' values of crude to the 
current month's, which would help to encourage stockholding. These stocks 
represent about 31 days' forward supply of anticipated total demand in the 
first quarter of next year-less than 2 days' fewer supply compared with 
November levels for the past two years. 

* Primary gasoline inventories fell in November from 154 million barrels to 
150 million barrels, contrary to typical seasonal patterns. This may reflect 
the relatively low levels of gasoline production over the past few months, 
and certainly current gasoline differentials to crude are not encouraging 
high gasoline production levels. Nevertheless, this is a potential cause for 
concern as it may lead to significant market volatility during the first 
quarter of next year. 

* Primary middle distillate inventories, however, are continuing to improve. 
October's total was revised upward slightly to 333 million barrels, and 
November ended at 334 million barrels. In addition to record levels of 
refinery production, exports from Russia are proving to be plentiful, with 
November's total exports from the former Soviet Union averaging 460,000 bd. A 
strong transatlantic arbitrage, however, has been causing most of these 
cargoes to go direct to the United States rather than stay in Europe.

**end** 

This CERA Alert will be available in PDF format within 24 hours. 

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