WEST / EAST

The arbitrage is undeniably wide open for — well, everything.

The only question is in what form these molecules achieve kinesis.

If the proportions behind the barrel are not great — lacking in Diesel and Jet — let the East deal with it. The region is starving for supply oxygen and will often overlook yield considerations in favour of securing feedstock.

There has been some valid speculation that the Atlantic Basin is now so long Heavy Sour crude that Mexican Maya could begin joining light sweet WTI on the arbitrage to Asia with increasing regularity.

Ignoring the US component of this Heavy Sour consumption pattern for a moment, it is Repsol’s vast network of modern refineries that continues to absorb the majority of these barrels and remains the key hurdle preventing Maya from travelling further East.

BILBAO

CARTAGENA

Who usually buys Maya in the East and understands the throughput mechanics? Hyundai at Daesan.

Even when increasing parcel sizes to 2 million barrels at a time, freight still works out around USD 65 per tonne compared with Repsol’s roughly USD 36 per tonne.

But Repsol appear overwhelmed. It remains a cumbersome process even for them and requires VGO along the way.

What may actually have prompted PEMEX to raise the alarm on Maya was not a lack of regional appetite per se, but the strike by Repsol refinery employees at the end of last month in response to Spain’s ongoing pension reform.

Currently, high-risk employees are entitled to retire fully remunerated at 52. The current legislation would push this back to 67.

It bears keeping in mind because we will start to see pushback.

As the market feels the pinch, blue-collar workers will feel it tenfold.

It is something Vitol arguably did not fully account for when acquiring their Australian assets — unions.

THE TOP 10 MOST STRIKE-PRONE COUNTRIES IN EUROPE

1. France
2. Belgium
3. Norway
4. Denmark
5. Finland
6. Spain
7. United Kingdom
8. Germany
9. Ireland
10. Portugal

It also makes a case for countries that are more stable in this respect, such as the Netherlands and Sweden, helping explain some of Vitol’s acquisition strategy there.

That aside, Europe continues to look very attractive from a pure cracking perspective.

Refiners are not operating in fight-or-flight mode as they are in the East.

They are still refining opportunistically rather than simply serving visceral domestic demand.

Take Heavy Sweet to LSFO conversion in Rotterdam.

ROTTERDAM (INBOUND)

Which in turn drove these export fixtures:

ROTTERDAM (OUTBOUND)

It is not that Heavy Sweet does not work into the East on its own — it does, consistently.

The difference is that European refiners are still finding the time to be proactive and extract every ounce of value before hosing the East with the finished product.

Talk about flogging a dead horse.