The front-month East-West price spread for 10ppm sulphur diesel hit its widest discount in a more than a year on Tuesday, LSEG pricing data showed, as Asian prices were hammered by poor fundamentals despite ICE gasoil strength.
The spread, typically measured by the exchange of futures for swaps (EFS) which compares front-month ICE gasoil futures and 10ppm sulphur gasoil swaps, was at a discount of nearly $32 a metric ton at the market’s close and has been widening for nearly two weeks, the data showed.
The discount was the highest since mid-February last year.
Asian markets have been grappling with ample supplies since end-January and with weaker-than-expected regional demand, several Singapore-based trade sources said, with distillates stocks at key storage and distribution hub Singapore above 10.5 million barrels in the week ended February 12.
Prices in Northwest Europe on the other hand have been supported by cold weather and earlier export volumes to the United States since January, two regional trade sources said, adding that arrivals have also been minimal given the closed arbitrage from some export regions earlier.
ICE gasoil prices have also been supported by firmer natural gas markets, some analysts say.
These wider East-West price spreads will likely result in more swing sellers pivoting their cargoes westward instead of east, unlike the past two months, and hopefully this will reduce some regional supply pressures, trade sources said.
Already for February loading, India is likely to ship around 280,000 metric tons of 10ppm sulphur diesel to northwest Europe, around double January volumes, LSEG shiptracking data showed.
However, some traders questioned the sustainability of this cold weather demand trend given that the U.S. refinery maintenance season is ending soon, which could change supply dynamics and minimise the earlier strength in reverse-arbitrage tradeflows.
February exports from northwest Europe to the U.S. Atlantic coast region have fallen to around 170,000 tons from 290,000 tons last month, Kpler shiptracking data showed.
Source: Reuters