October gasoil EFS widens to 3-month high on European demand weakness

Singapore — The front-month gasoil Exchange Futures for Swaps widened to a near 3-month high on Sept. 21, led by a weakening European diesel market as sources pointed to a lack of demand and ballooning stocks in the Amsterdam-Rotterdam-Antwerp trading hub.

The October EFS -- the spread between the Singapore 10 ppm sulfur gasoil swaps and the corresponding ICE low sulfur gasoil futures contract -- was assessed up $1.79/mt at $5.68/mt at the Asian close Sept. 21, S&P Global Platts data showed.

The spread was last higher on June 29 at $5.82/mt. At 0300 GMT Sept. 22, the front-month EFS swap spread intraday value was seen wider at $5.75/mt.

Increasing oversupply and lack of inland storage in Northwest Europe is prompting more cargoes to end up on floating storage despite questionable economics.

In the paper market, the prompt structure of the ICE low-sulfur gasoil futures softened on Sept. 21 with the October/November contango deepening by 25 cents/mt on the day to $7/mt and the November/December contango widening by 25 cents/mt to $5.75/mt.

There was a lack of ullage availability in the Amsterdam-Rotterdam-Antwerp hub, according to an industry source, meaning a number of incoming vessels, in particular from the Persian Gulf, had been unable to discharge.

"The market has been in contango for months so ullage has sharply decreased," another market participant said, adding that incoming cargoes unable to discharge would end up in floating storage. "If you don't have other outlets, then it is the least expensive solution."

Meanwhile, low water levels along the Rhine had forced barges to part-load from ARA to inland demand centers, further dampening already low buying appetite for clean barges, market sources said.

Rhine water levels are set to fall to 77 cm on Sept. 25 at the key choke-point of Kaub in Germany, down from 90 cm Sept. 21, according to the German Waterways Authority (WSV).

There was "nothing trading," according to a third industry source, who said this was a result of the increasing barge freight rates and logistical problems due to low water levels, as well as the already poor demand inland for clean products such as ultra low sulfur diesel and heating oil.

ASIAN GASOIL STAGNANT

Looking East, the ultra-low sulfur diesel complex in Asia was described by market participants to be at a stand-still, with activity capped by underwhelming demand against a backdrop of abundant spot supplies.

"I think market is slim [there is] no availability .... no demand," a trader based in Singapore said Sept. 22.

Another regional trade source added, "The market is really quiet now ... nothing is happening".

While cross-regional flows and floating storage interest for the middle distillate helped to keep a floor for gasoil prices, industry sources reiterated that reimposition of coronavirus-related restrictions amid accelerating infections around the region has muted demand with buyers seen retreating to the sidelines once again.

Furthermore, steady outflows from key exporting centers including China and India continue to contribute to the excess supply, limiting any potential upside for Asian gasoil market, they added.

The setback was seen in the front-month October-November gasoil swap contango structure at minus 49 cents/b at Asian close Sept. 21, widening 5 cents/b from Sept. 18. The 0300 GMT Sept. 22 the intraday value was steady at minus 48 cents/b.