Lower East of Suez gasoil, ULSD exports in Jan leave Europe tight

European diesel and gasoil markets have tightened amid a sharp fall in expected arrivals from East of Suez markets in January, resulting in higher values and a surge of buying interest for cargoes, particularly 0.1%S gasoil.

ULSD

The volume of ultra low sulfur diesel set to arrive in Europe in January totaled 859,300 mt as of Jan. 14, according to commodity firm Kpler data and shipping fixtures. Around 655,800 mt has arrived, with a further 203,500 mt en route in two cargoes pointed towards the Mediterranean.

Just over 2 million mt of East of Suez ULSD arrived in Europe in December.

The Long Range 2 tanker Prosky is set to deliver around 104,000 mt of ULSD at Fiumicino, Italy, while the LR2 Clear Stars is carrying around 99,500 mt, originally destined for Sidi Kerir but now pointed towards another Mediterranean destination.

Only 122,400 mt has arrived in Northwest Europe so far in January, while the Mediterranean looked set to receive around 736,900 mt by the end of the month.

European diesel cargo markets are experiencing tight fundamentals in January, partly because of the lower imports from East of Suez due to closed arbitrage economics mid-to-late December, when vessels were being fixed on the route, sources said.

Meanwhile, poor refining economics have continued to hamper local diesel production, and demand has only slipped marginally due to the omicron coronavirus variant, traders said.

However, the arbitrage looked to have reopened on paper, which could see flows increase going into February.

The front-month exchange of futures for swaps -- the difference between 10 ppm FOB Singapore swaps and ICE low sulfur gasoil futures, and a key indicator of the arbitrage from East to West -- was assessed at a six-week low of minus $14.55/mt at the Asian close Jan. 14. Traders have indicated previously that the arbitrage is generally open with EFS values of minus $10/mt to minus $15/mt.

CIF NWE ULSD cargoes were assessed at a $7/mt premium to front-month ICE LSGO futures Jan. 13, with CIF Mediterranean cargoes assessed at a $5/mt premium, despite traders reporting a lack of Handysize cargoes in the region.

"There are no [Handysize] cargoes on offer for January ... Even at CIF plus $10/mt, I would not be able to invent a cargo," one Mediterranean-based trader said.

Gasoil

Arrivals of higher sulfur gasoil of various grades will also be limited in January, with around 188,300 mt having arrived so far in Europe in January, according to Kpler and shipping fixtures data.

Imports in December totaled 491,700 mt.

In Northwest Europe, gasoil supply has been tight in the ARA hub, despite demand being weak in the new year as market participants filled tanks before increases in CO2 taxes on Jan. 1 in much of western Europe, while warmer than usual temperatures in Europe have hit demand for gasoil, which is primarily used as a heating fuel, according to market sources.

In the Mediterranean, a lack of local production has kept supply trimmed.

However, supply-side constraints have seen a notable number of 0.1%S gasoil cargo bids in the Platts Market on Close assessment process in recent weeks, with traders saying the market was very tight.

As a result, 0.1%S gasoil cargoes have been at a premium to ICE LSGO futures since mid-December, due to strong fundamentals in both Northwest Europe and the Mediterranean.

CIF Northwest Europe cargoes were assessed at a $3/mt premium to LSGO futures Jan. 13, while CIF Mediterranean cargoes were at a $5/mt premium.

West Africa

Meanwhile, the West African gasoil market has been thin since December, with Nigeria's FX crisis continuing to dominate the landscape, with the country prioritizing imports of government-subsidized gasoline over non-subsidized gasoil with what funds they have available.

"No one has imported gasoline into Nigeria for three years except for the government," a market source said.

There was a tightness of supply in December for diesel and FOB STS Lome 0.3%S gasoil, according to market sources, but several cargoes were due to arrive in January.

So far in January, the LRs Sea Beauty and Zenovia Lady have brought cargoes, both listed as diesel, of 112,000 mt and 102,000 mt, respectively, to Lome, while the Marlin Hera brought 60,800 mt of 500 ppm gasoil, according to the Kpler data and shipping fixtures.

FOB STS Lome 0.3%S gasoil was assessed at a $5/mt premium to LSGO futures Jan. 13.