LONDON, July 31 (Reuters) - A shutdown over the weekend at Europe’s largest oil refinery is driving up prices of petroleum products in northwest Europe and further tightening a market that was already showing signs of rebalancing supply and demand.
Royal Dutch Shell began shutting down most of its units at the 404,000 barrels per day Pernis refinery in Rotterdam following a fire on July 29 in its power supply system.
The length of the shutdown remains unknown and the company was still in the process of switching off some units at the plant on Monday.
News of the shutdown drove up the benchmark diesel refining margin in northwest Europe LGO-1=R, the profit that refiners can make from refining crude into diesel, to a session high of $14.60 a barrel on Monday, its highest level since November 12, 2015.
The benchmark European prompt Low Sulphur Gasoil futures contract was trading at a premium to the September contract of $10 a tonne earlier in the day, before coming off to $1.50 a tonne at 1050 GMT.
That compared with a discount of 25 cents on Friday.
When a current-month futures contract trades at a premium to the following month, a market condition known as backwardation, it indicates a strong market for prompt supplies.
Gasoline barge prices in Europe this morning were trading at $550 a tonne on a loading basis in the Amsterdam-Rotterdam-Antwerp region, up from a trading range of $523-$532 a tonne on Friday.
As a result the gasoline refining margin in northwest Europe was up by around 12.2 percent at $13.43 a barrel, according to Reuters calculations.
“The [European oil products] market had been tightening before the weekend disruption,” said Olivier Jakob, strategist at Swiss-based Petromatrix.
“The strength in the structure in diesel and the crack was there already, it’s not just Pernis,” Jakob added. (Reporting by Ahmad Ghaddar and Ron Bousso; Editing by Greg Mahlich)