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Market overview

Continuing uncertainties in the world economy and geopolitical tensions in oil-producing countries were the main drivers in the oil market during 2013. Brent traded in the USD 100–120/bbl range, peaking in early February, when it reached USD 120/bbl, before weakening in the lead-up to the summer as new concerns related to the international economy and future growth prospects in China drove the price close to USD 100/bbl. Following some positive signs in the international economy, combined with political unrest in Syria and strikes that reduced Libyan crude oil exports, crude trended up during the late summer and early fall towards USD 120/bbl. As the strikes ended in Libya and negotiations between Iran and Western countries pointed to the possibility of a future easing of crude export sanctions, crude prices returned to USD 105–110/bbl, ending the year at around USD 110/bbl. The increasing production of tight oil in the US limited crude price increases and resulted in narrower differentials between lighter and heavier crudes.

The price differential between Russian Export Blend (REB) and Brent averaged USD –1/bbl in 2013, which was slightly narrower than in 2012. The differential widened significantly during the spring on the back of higher crude prices and the refinery maintenance season before narrowing and reaching even positive differential levels in the late summer when delayed maintenance at Russian refineries and the strikes in Libya reduced oil exports. The refinery maintenance season in the fall and the end of the strikes in Libya saw the price differential widen again, approaching around USD –2/bbl. With the ending of the maintenance season, the differential narrowed towards USD –1–1.5/bbl, where it stood at the end of the year.

Refining margins in Europe were volatile and clearly weaker on average than in 2012. Margins during the first quarter were strong, as gasoline margins were unseasonably high due to refinery outages and relatively low gasoline inventories. After a strong start to the year, refining margins experienced growing pressure in the second half as new capacity was ramped up in the Middle East and Asia. High diesel exports from the US to Europe also pushed European refining margins down, to such an extent that many refiners were forced to make economic run cuts. Margins were lowest at the end of the year after the fall maintenance season.

Middle distillates were again the strongest part of the barrel. Gasoline margins were seasonally low during the early part of the first quarter and the fourth quarter, but were strong from the spring until the early fall. Fuel oil margins were strong during the first half of the year, but weakened significantly during the second half.

Crude palm oil (CPO) prices were volatile and traded at USD 680–825/ton (Malaysia) during the year. Lower-than-expected supply growth, combined with strong exports, kept Malaysian palm oil inventories below the 2 million ton benchmark level from March 2013 onwards, which resulted in higher prices towards the end of the year.

Rapeseed oil (RSO) and soybean oil (SBO) prices fell during the year. SBO prices, in particular, came under pressure, as the US soybean crop was better than expected, while the outlook for the 2014 crop in South America remained very good. The price differential between palm oil and rapeseed oil was wider than the long-term average during the first half of the year, but narrowed subsequently. The CPO/RSO spread fell from USD 330/ton in the first quarter to around USD 150/ton in the fourth quarter of 2013. Animal fat prices remained at a premium over palm oil, but the premium was clearly narrowed during the fourth quarter.

Demand for biodiesel in the EU fell by approximately 8% compared to 2012, due to a lower mandate in Spain, double countable biofuels reducing physical demand, and stagnating fossil diesel demand. European Fatty Acid Methyl Ester (FAME) prices remained quite stable, but the price differential compared to rapeseed oil varied significantly. The year started with narrow FAME margin levels, which began to gradually improve after the European Commission announced its intention to implement antidumping duties on imports of biodiesel from Indonesia and Argentina. Despite some occasional tightness in European markets, this eased towards the end of the year as a result of higher domestic supplies. Antidumping duties were finally introduced on Argentinean and Indonesian biodiesel in November.

In the US, the biomass-based diesel mandate was raised from 1 billion to 1.28 billion gallons for 2013. The Blender’s Tax Credit of USD 1/gallon was applied retroactively for 2012 and 2013 and led to higher demand and higher prices for Soybean Methyl Ester (SME) and renewable diesel. High demand, combined with a market approaching the 10% ethanol blend wall in gasoline, pushed biomass-based diesel and its Renewable Identification Number (RIN) value to record highs in the late summer. In response to criticism against future renewable fuels targets that were expected to exceed the ethanol blend wall, the Environmental Protection Agency (EPA) proposed lowering the targets for ethanol and cellulosic biofuel but keeping the bio/renewable diesel mandate unchanged in 2014 and 2015. By the end of the year, biofuel prices had clearly dropped compared to the exceptional highs seen during summer.

Key drivers
2013 2012
Reference refining margin, USD/bbl 4.82 7.39
Neste Oil total refining margin, USD/bbl 9.60 10.17
Urals-Brent price differential, USD/bbl -1.02 -1.29
NWE Gasoline margin, USD/bbl 10.54 13.16
NWE Diesel margin, USD/bbl 18.07 20.60
NWE Heavy fuel oil margin, USD/bbl -16.27 -12.92
Brent Dated crude oil, USD/bbl 108.7 111.6
FAME seasonal- Palm oil price differential, USD/ton* 356.0 234.6
SME - Soybean oil price differential, USD/ton** 388.6 175.3
USD/EUR, market rate 1.33 1.28
USD/EUR, hedged 1.30 1.33
Crude freights, WS points (TD7)*** 91 91
* FAME seasonal vs. CPOBMD3rd (Crude Palm Oil Bursa Malaysia Derivatives 3rd month future price) + 70 $/t freight to ARA (Amsterdam–Rotterdam–Antwerpen)
** SME US Gulf vs. SBO CBOT 1st (Soybean Oil Chicago Board of Trade 1st month futures price)
*** Worldscale (WS) points for a 80,000 ton crude cargo from the North Sea to Continental Europe