The recovery of the world economy, geopolitical tensions in oil-producing countries, and fears surrounding the escalating Euro-zone crisis later in the year were the oil market’s main drivers during 2011. Crude oil prices moved up throughout the spring, hand in hand with the positive mood in the global economy and growing investor interest in commodities. Brent Dated broke the psychological USD 100 /bbl mark in early February and reached around USD 125/bbl between mid-April and early May during the crisis in Libya, which shut down most of the country’s crude oil production. The escalating Euro-zone crisis and fears of a potential global slowdown subsequently pushed crude prices back to USD 105-115/bbl. Compared to base metals and equities, however, the drop in crude prices was less dramatic, and every time Brent Dated approached USD 100/bbl it moved up again, ending the year above USD 100/bbl.
The price differential between heavier and lighter crude fluctuated and was slightly wider on average compared to 2010. The differential widened significantly during the spring, on the back of higher crude prices and softer fuel oil performance. Towards the fall and the end of the year, it narrowed again and approached zero. This was mainly the result of softer fuel oil margins and a tight crude supply-demand balance in Europe, particularly in Russia. Overall, the differential matched long-time averages for the third consecutive year.
Neste Oil’s reference margin was in line with 2010 levels, and the differences between individual quarterly averages were quite small. Strong middle distillate margins supported the margin during the spring and the fall, while gasoline margins contributed during the summer, when middle distillate margins moved lower. Compared to 2010, wider fuel oil–middle distillate margins, together with weak gasoline margins during the first and fourth quarters, reduced the margins of simple refineries and gave a competitive advantage to refiners with complex refineries, such as Neste Oil.
Margins for middle distillates strengthened steadily during the year, on the back of increasing global demand. During the normally weaker summer season, additional support was provided by the low utilization of Chinese hydropower and reconstruction after the Japanese tsunami. Later in the fall, scarce supplies in Europe and low exports from Russia pushed diesel margins to their highest levels since early 2009.
European gasoline margins overall were weaker compared to 2010. Margins were seasonally weak during the winter and early spring, but the summer driving season gave some support, as did narrower fuel oil and middle distillate margins, which lead to reduced refinery output. Towards the late fall, gasoline margins dropped to close to zero while middle distillate margins were running at annual highs.
Rising crude prices saw fuel oil margins weaken during the early part of the year, dropping to their lowest levels since late 2008. Over the summer and towards the fall, power shortages in Japan after the tsunami and the drought in China increased fuel oil demand. Lower crude prices and shutdowns at less complex refineries narrowed fuel oil margins.
Biodiesel margins were weak in early 2011 and vegetable oil prices were seen as too high by biodiesel producers. Vegetable oil prices moved downwards and fell further in the late summer when European debt worries emerged. Palm oil production and supply had increased and palm oil prices fell more than rapeseed oil prices, which were supported by a poor rapeseed crop in Western Europe. Lows were seen in October 2011, since when vegetable oil prices have been recovering. Better biodiesel margins together with a widening rapeseed oil - palm oil price differential saw renewable diesel margins return to very good levels in the third and fourth quarters.
|Reference refining margin, USD/bbl||4.37||4.35|
|Neste Oil refining margin, USD/bbl||8.48||8.14|
|Urals-Brent price differential, USD/bbl||-1.71||-1.40|
|NWE Gasoline margin, USD/bbl||7.41||9.70|
|NWE Diesel margin, USD/bbl||18.12||13.97|
|NWE Heavy fuel oil margin, USD/bbl||-15.96||-10.32|
|Brent Dated crude oil, USD/bbl||111.27||79.47|
|USD/EUR, market rate||1.40||1.32|
|Crude freights, WS points (TD7)||104||115|