Persian Gulf ULSD cash differential back in premiums on curtailed supply

Singapore — The cash differential for 10 ppm sulfur gasoil cargoes loading from the Persian Gulf climbed back into positive territory, after two months in the negative, as curtailed supply shored up prices, Asian middle distillate sources said.

At the Asian close on May 29, the cash differential for ultra low sulfur diesel cargoes loading from the Persian Gulf was assessed 20 cents/b higher at a premium of 10 cents/b to the Mean of Platts Arab Gulf gasoil assessments. The upward move marked the end of a near two-month stint in negative territory, with S&P Global Platts data showing that the cash differential had first dipped to a discount of 20 cents/b to MOPAG gasoil assessments on April 3. At the end of April, the discount for ULSD cargoes loading from the Persian Gulf was at its deepest, a low of $1.30/b under MOPAG gasoil assessments.

The move into negative terrain was the first time ever that the ULSD cash differential for cargoes loading from the Persian Gulf had been assessed at since Platts first began publication of the assessment on April 1, 2015.

"The cash differential for 10 ppm sulfur gasoil cargoes has gone up a lot," a trader with a European company said, adding that ULSD parcels for loading from South Asia had reportedly been trading in the spot market at a premium of between 50 cents to $1/b to MOPAG gasoil assessments. Those parcels are understood to be loading over the second-half of June, but details of these spot trades could not be confirmed.

Market participants said that while spot trades of ULSD cargoes for loading from the Persian Gulf have been thin, they estimated premiums for cargoes loading in H2 June to be around parity to under 50 cents/b to MOPAG gasoil assessments.

Platts last reported on May 21 that Kuwait Petroleum Corp. concluded a spot tender to sell 10 ppm sulfur gasoil to two Western trading houses for loading over June. One of those cargoes, a 60,000 mt clip, was reportedly done at a discount of 30-40 cents/b to the MOPAG gasoil 10 ppm sulfur assessments, FOB, for loading over June 6-7. This was higher compared with the refiner's previous spot sale, where it sold two 10 ppm sulfur gasoil cargoes -- one 60,000 mt and the other 40,000 mt -- for loading over May 22-25 to two traders at a discount of between 80 cents/b and $1/b to MOPAG gasoil assessments, FOB.

A source with a Western trading house noted that since then, "the market direction has... gotten stronger", with gasoil timespreads rallying in recent weeks and providing a boost to cash differentials.

SIMILAR STRENGTH IN MEDIUM SULFUR GRADE

The jump in the ULSD differential to be valued at a premium was in tandem with an upward rise in the 500 ppm gasoil cash differential as cargoes of the 500 ppm medium sulfur grade loading from the Persian Gulf was in short supply, traders said.

"500 ppm [sulfur gasoil for loading from the Persian Gulf] feels quite tight as refiners are all running low," a trader with a Western company said, adding that there was "very little 500 ppm in the market being offered".

A Singapore-based trader echoed the same sentiment, saying that supplies of the medium sulfur gasoil grade was leaner "in the Persian Gulf and the Far East too, due to low refinery runs".

The price support was demonstrated during the Asia Platts Market On Close assessment process on May 29, with Shell the sole buyer seeking 200,000 barrels of 500 ppm sulfur gasoil cargo for loading from Sitra/Ruwais/Kuwait over June 22-26. Shell's final bid at a discount of 74 cents/b to MOPAG gasoil assessments, after accounting for deemed pricing, stood till the end of the MOC process without attracting any selling interest. Platts assessed the grade up 24 cents/b on the day, at a discount of 91 cents/b to MOPAG gasoil assessments.

In its latest note released on May 28, S&P Global Platts Analytics expected the level of maintenance, idling and run cuts at Middle Eastern refineries "to remain largely unchanged at around 930,000 b/d for the week ending May 29".

"We are continuing to add in unplanned outage at Iraq's Basrah refinery and discretionary run cuts at Iran's Shuaiba refinery. However, for week ending June 5, the regional outage level is forecast to soften slightly as Bahrain's Sitra refinery is expected to restart after planned maintenance works. Depending on the progress, the regional outage volume could decline as much as around 270,000 b/d," Platts Analytics said in its note.