Europe middle distillates: Key market indicators this week

London — The ICE low sulphur gasoil futures flat price finished $2.75/mt lower on the week at $297.5/mt Friday after exhibiting extreme volatility Thursday afternoon.

They traded in a range of $290.75-$383/mt in the five minutes after 1435 GMT after the US president tweeted that he expected a 10 million-15 million b/d crude oil cut to be agreed between Russia and Saudi Arabia.

The front-month April ICE LSGO future expires midday Wednesday.

In the middle distillate markets:

Diesel

• There is a potentially workable arbitrage from Europe to the US Atlantic Coast after North Atlantic Refining Company's 130,000 b/d Come by Chance refinery in Canada said it would be shutting down for an unknown amount of time and Irving's 330,000 b/d Saint John refinery in Canada announced significant run cuts. Ultra low sulfur diesel inventories fell by 1.6 million barrels to 29.2 million barrels on the US Atlantic Coast in the week ended March 27, the latest EIA data showed.
• Lower demand is expected inland for ULSD to use in the heating pool as stocks of heating oil fill up and the switch to summer grade ULSD takes place.
• In Northwest Europe, demand for diesel as road fuel has reportedly dropped by around 65% in France and by 50% in the UK, the latest among big countries to impose a lockdown in Europe.
• There is no spot demand for diesel in the Mediterranean with cargoes struggling to get placed.
• The VLCC Elandra Kilimanjaro, which was reportedly chartered by Unipec to bring 260,000 mt ULSD from the Far East -- it loaded in South Korea and Singapore -- to Europe, with an initial planned arrival in Rotterdam on April 19, has finally gone to West Africa. It arrived offshore Lome on Friday.

Gasoil

• The contango for ICE low sulfur gasoil futures is not steep enough to support floating storage economics for gasoil in Europe. Second-month ICE LSGO futures were trading at around $6.75/mt above the front month Monday morning, .
• Blending 10 ppm ULSD down into 50 ppm gasoil is now one of the last sources of demand for the former as virus travel restrictions reduce driving demand. However, this is not expected to continue when Europe switches over to summer specification diesel, which could further add to Europe's ULSD supply glut in the coming weeks.
• Diesel and gasoil inventories in the Amsterdam-Rotterdam-Antwerp trading hub slipped 1% week on week to 1.864 million mt as of Wednesday, Insights Global data released Thursday showed. Stocks were 32.4% lower year on year, according to Insights Global data.
• Compared to jet fuel and ULSD, gasoil cracks in Europe are by far the best performing middle distillate. On Friday, the FOB ARA 0.1% gasoil barge cracking margin was assessed at $5.14/b, a $7.57/b premium over the crack for ARA jet barges, which were in negative territory Friday.
• With efforts to contain coronavirus smothering refined product demand across the board, gasoil outright prices show no signs of recovery. On Friday, CIF 0.1% gasoil cargoes in the Mediterranean were assessed at $278.5/mt, unchanged from a week earlier and down about 39% from a month earlier.

Jet fuel

• The physical jet CIF NWE cargo differential to the ICE low sulfur gasoil future fell $17/mt on the week to minus $71.25 Friday, while the FOB FARAG barge differential fell $4.5/mt to minus $70/mt.
• Jet stocks in the Amsterdam-Rotterdam-Antwerp hub rose 27% to 572,000 mt, down 22% from a year ago and below the highest level recorded of 853,000 mt in December 2015, Insights Global data showed. Stock are expected to continue to build and jet prices could fall further if inland stocks fill up moving into May.
• April arrivals into Europe from the East of Suez market are pegged at around 1 million-2 million mt depending on disport options. There were diversions into the Caribbean in March. Rising freight rates have hindered floating storage on long range tankers in Northwest Europe, although vessels are taking longer routes West, such as around the Cape of Good Hope.
• Storage and kerosene for heating are the major sources of jet demand, with scheduled European airline seat capacity falling below 25% last week, and global capacity dropping below 50%. Expectations that flights are is recovering in Asia are mixed, although domestic Chinese demand is rising.

Derivatives

• Jet crack swaps ended the week at fresh record lows, with the front-month crack versus Brent futures assessed down 61 cents/mt at minus $2.16/b Friday. Traders said the crack could fall further as demand for jet fuel weakens further.
• Gasoil and diesel prompt swaps came down as support from heating demand fell away, traders said. The front month 10ppm FOB ARA barge swap was assessed at minus $6.25/mt Friday, down from minus 0.75 cents/mt the week before.
• ICE low sulfur gasoil futures net contract length continued to climb, rising 3,223 to 27,623 contracts in the week to March 31, ICE data showed.