EMEA Middle Distillates: Key market indicators Nov 8-12

The Mediterranean market could see demand for gasoil for heating in the Nov. 8-12 trading week as winter approaches. Demand for jet fuel in November is expected to match October levels in Northwest Europe.

Derivatives

Speculative net long positions in ICE low sulfur gasoil futures were down 12,785 contracts to 138,997 in the week to Nov. 2, according to ICE data.

Managed money long positions fell by 10,574 contracts to 143,357, while short positions rose by 2,211 contracts to 4,360.

The front-month ICE LSGO contract was assessed at $720.75/mt on Nov. 5, while the front-month versus second-month spread was assessed at $6.25/mt.

Diesel

Cash differentials for ultra low sulfur diesel cargoes dropped towards the end of the week ending Nov. 7 amid volatility in the ICE LSGO futures despite robust physical fundamentals reported by market participants.

CIF Northwest European cargoes were assessed at a $2.25/mt premium to the November ICE LSGO futures contract Nov. 5, down 75 cents/mt from a week earlier, while CIF Med cargoes fell $2/mt on the week to a $1/mt premium, with uncompetitive buying interest in the Platts Market on Close assessment process failing to boost prices.

Supply fundamentals could ease in November, with Russian export programs set to be slightly longer.

Exports from the Russian Baltic port of Primorsk are set to be at around 1.5 million mt in November, reflecting a 25.8% rise on the month, with a handful of larger-than-usual clips of around 60,000 mt and 100,000 mt set to be included in the program, according to market participants, who thought that some of the large clips might head to the US Atlantic Coast rather than into the Northwest European CIF cargo market.

In the Mediterranean market, Novorossiisk exports are set to rise 30% on month to 554,600 mt in November, while Tuapse exports are set to fall for the sixth consecutive month, by 3.5% on the month to 125,000 mt, according to separate loading schedules seen by S&P Global Platts.

Market participants continue to report very good demand for ULSD in both the barge and cargo markets however, with FOB ARA barges prices stabilising in the week to Nov. 7, assessed at flat to the November ICE LSGO contract Nov. 5.

Jet fuel

CIF Northwest Europe jet fuel cargoes were unchanged week on week at $752.50/mt Nov. 5 and were down $2/mt to a $31.75/mt premium to front-month ICE low-sulfur gasoil.

In Northwest Europe, the jet fuel market continues to be largely balanced. Demand remains robust, with November levels expected to match October, while volumes arriving from East of Suez are also anticipated to be similar in November to October. Eyes are focused on local production amid improving economics supporting yield switching to jet. This could add further supply to the local market.

In the Mediterranean, supply continues to be tight, with a lack of available cargoes for November and December. Demand was heard to have softened, pushing down premiums of the Mediterranean market over Northwest Europe. However, sufficient demand exists in the complex to keep the market short overall.

According to the European Organization for the Safety of Air Navigation, or Eurocontrol, the seven-day moving average of European flight traffic for the week ending Nov. 7, was down on the previous week at 79% of 2019 traffic levels for the same point, compared to 81% the previous week.

Jet fuel/kerosene inventories in the Amsterdam-Rotterdam-Antwerp trading hub dropped by 6.2% on the week to 858,000 mt in the seven days to Nov. 3, Insights Global data showed Nov. 4. Jet fuel/kerosene stocks are now 29.2% lower than this time last year, and up 15% on the same week in 2019, the data showed.

Gasoil

In Northwest Europe, combined gasoil and diesel stocks in the ARA hub fell 3.9% on the week to Nov. 4. This was driven by good demand for heating oil as winter approaches in the Northern Hemisphere and the backwardated market structure incentivizing refiners to draw down on their stocks.

Logistical freight problems on the Rhine held back the amount of stocks that were able to leave the ARA hub by barge but increasing water levels should ease congestion.

In the Mediterranean, there has been a large spread between ULSD and 0.1%. Market sources said that the high cost of hydrogen, resulting from upward spiraling natural gas prices, has made desulfurization expensive.

In addition, heating demand is not yet there in the Mediterranean due to good weather. Although, traders said that November is the month where this turns for the Mediterranean.

In West Africa, the landscape is still dominated by the FX crisis and high flat prices. This is hurting demand for gasoil in the region.