European 50 ppm gasoil, ULSD see rare inversion as virus containment skews demand

New York — Distortions in middle distillate demand patterns in Europe resulting from efforts to contain the coronavirus pandemic have caused a rare inversion in the prices for 50 ppm sulfur gasoil and 10 ppm sulfur diesel barges.

S&P Global Platts assessed benchmark 50 ppm gasoil barges in the Amsterdam-Rotterdam-Antwerp hub at $0.50/mt above benchmark diesel barges Thursday, the first time the higher sulfur product has priced at a premium since June 27, 2013 when gasoil was assessed at $0.75/mt above diesel.

One source said that severe travel restrictions intended to limit the spread of coronavirus have drastically reduced ULSD demand and at the same time, such travel restrictions have forced millions of Europeans to stay at home more than they normally would, which in turn has added to gasoil demand for heating purposes.

"Can't think of another explanation," for the distillate price inversion, he said.

Moreover, the much lower flat-price environment has boosted demand for heating oil, which is typically far more price-elastic than demand for road fuels.

"A lot of people wanted to fill their tank with heating oil, so we had a run on heating oil," another trader said. "Rhine levels are good and logistics are still working, we are still getting product but there are difficulties in assembling the crews for barges and it is also difficult to find barges vessels," he added.

"The other day I had to buy [50 ppm gasoil] from refineries in south Germany," a third trader said, adding that logistics to get product from ARA were getting more difficult.

It is extremely rare to see 50 ppm gasoil price above 10 ppm diesel, because the latter product can usually be blended down to make the former product.

Another source on Friday said that the 50 ppm gasoil premium to ULSD would not be sustainable because in some cases the two fuels should be interchangeable for consumers.

"If you want to heat your home, why not just stick the diesel right in your heater and burn lower sulfur product? There should not be a compatibility issue and it would it be better for environment," he said.