European refineries are enjoying a rebound in the profitability of turning crude oil into products at the start of the year, after reaching their worst point of last year in December, traders said Tuesday.
"Margins are decent," said a buyer at one Northwest European refinery Tuesday. "The year has started better than everyone expected. A bit of cold weather in the US doesn't hurt, it helps us in Europe refining."
The recovery in margins started far earlier than the current extreme cold weather in the US however, with crude prices softening last week on news from Libya that the Sharara field had restarted, although exports of the grade have not resumed yet.
A closed arbitrage East for the key North Sea crude grade Forties has also helped create cheaper feedstock costs for refiners.
"There is some expectation of February barrels going to Asia, which is keeping up the front spread, but I am skeptical," another trader said Tuesday.
"Saudi OSPs are lower, and there is some refinery maintenance out there."
The result was a longer Forties market than in December, said traders. "Forties [is] probably a tad oversupplied, as it will require local demand to clear," said one trader Tuesday. "And Urals is still relatively weak."
The Forties ARA cracking netback margin, which includes the cost of freight, has averaged minus $0.10/b in January so far, compared with minus $0.80/b average in December.
The Urals ARA cracking netback margin has averaged $0.0416/b in January so far, compared with minus $0.765/b in December.