Longer-dated refining margins rallying ahead of the winter

Crude oil prices climbed higher to 74 $/b for ICE Brent front-month contract ahead of the Nicolas weather event, reclassified as a hurricane in the last hours, ahead of its landfall. Large refineries in the Houston area announced that they would maintain normal operations. The impact of such a hurricane will likely reduce crude throughputs and run down stocks of gasoline and distillate products, already heavily impacted by Ida. Production in the Gulf of Mexico recovered quicker than anticipated yesterday, with only 900 kb/d of shut-ins remaining. 

Despite ICE Brent crude being above 74 $/b at the prompt, refining margins globally remained firm and could rally further. In Europe, the backend of the forward refining margin curve increased, amid a strong rally for longer-dated HSFO prices, boosted by tight winter markets. Indeed, BofA mentioned a 1-2 mb/d potential incremental demand for heating this winter in a note, amid significant oil-to-gas switching behaviour in Asia. Forward margins are now in shallow contango, but from a higher base than previously, which supports refining operations, despite planned outages in Europe for mid-Q4.