Refinery oil premiums cast doubt on speculators [View All]

Refinery oil premiums cast doubt on speculators

Refiners are paying record premiums for the high-quality crude oil they use to produce diesel and petrol, a sign of strong demand in the physical oil market that calls into question claims that soaring oil prices are being driven by speculators.

Refiners are paying up to $5-$6 a barrel on top of current record prices to secure high-grade oil, traders said, double the level of a year ago. The mark-ups are four times higher than the 2000-2008 average. The movement in prices paid for physical barrels of oil has gone largely undetected outside the refinery industry because financial markets pay almost exclusive attention to the price of oil futures traded in London and New York.

The fact that refiners are willing to pay a higher price for physical supplies than the futures benchmark lends weight to the argument that speculators are not the cause of record oil prices. At the same time, though, refiners are obtaining unusually large discounts for low-quality crude oil, traditionally refined into fuel oil. Traders said supplies of low-grade oil, typically produced in the Middle East, are relatively plentiful.