The prompt July price spread between diesel prices in Asia and Europe stretched further to a discount of nearly $120 per metric ton, its widest in slightly more than 2-1/2 years, LSEG data showed on Thursday.

The exchange of futures for swaps (EFS), or the price difference between ICE gasoil futures and Singapore swaps, was last seen at this level at the end of October 2022, according to the data.

The ICE gasoil futures contract for July is due to expire later on Thursday, while the August EFS (LGOAEFSMc2) was at a discount of $35 per metric ton as of 0830 GMT.

A wider EFS spread will typically encourage swing suppliers in India and the Middle East to send their cargoes to Europe to cash in on higher prices.

For cargoes loading in the first-half July from the Middle East and India, most of them are bound for West of Suez markets, LSEG shiptracking data showed.

The unprecedented surge in European diesel prices has created arbitrage opportunities to send supplies from the U.S. gulf coast and Asia to Europe, Sparta Commodities’ analyst James Noel-Beswick said in a note.

However, the wide backwardation in ICE gasoil futures could be a risk as it may reduce prices of their cargoes by the time they reach Europe in second-half of July or August, a Singapore-based trader said.

Backwardation refers to a market structure where prompt prices are higher than those in future months.

The July/August ICE gasoil spread (LGOc1-LGOc2) is at $110 per ton, the widest since October 2022 when the European Union imposed an embargo on Russian oil after the Ukraine war.

The August/September (LGOc2-LGOc3) is at $16-17 per ton in backwardation.
Source: Reuters