USGC middle distillate shipments to Europe stall at 280,000 mt amid strong HOGO

London — Middle distillate shipments from the US Gulf Coast to Europe in December were unchanged at 280,000 mt Dec. 22, with the arbitrage route heard closed due to a strong HOGO spread.

The HOGO spread – the difference between NYMEX ULSD and ICE LSGO futures – reached highs of 13.17 cents/gal Dec. 21, up 1.24 cents/gal or 10.4% on the week, despite continued ULSD stock builds in the US.

In Europe, the front-month ICE LSGO contract also reached fresh highs of $433.75/mt Dec. 18 supported by vaccine-driven optimism, before tumbling $19.25/mt on the day to $414.50/mt Dec. 21 on news of a new strain of coronavirus.

Three middle distillate cargoes arrived in Europe in the past seven days: the Medium Range tanker Overseas Mykonos brought around 40,000 mt of jet fuel to Ashkelon, Israel, while another MR, Nave Orbit, brought around 40,000 mt of ULSD to Las Palmas, Canary Islands, according to S&P Global Platts trade flow software cFlow Dec. 22. A third MR tanker, the Navig8 Guard, brought ULSD and gasoline to Antwerp, the data showed.

Tax regulations on the US Gulf Coast create an incentive for refiners to reduce their product volumes as much as possible for the year-end, which is thought to be responsible for the increased flows in December while arbitrage economics remain unfavorable. December shipments are already more than double the 120,000 mt sent from the US Gulf Coast to Europe in November.

Fundamentals in the Northwest European market remained weak as the second wave of coronavirus continued to cripple mobility on the continent. However the strong HOGO spread and reverse arbitrage to the US Atlantic Coast had helped clear some length in the market.

Around 100,000 mt of European middle distillates were loaded on the route to the US Atlantic Coast in the second week of December, taking flows to 340,000 mt so far in December, according to cFlow data.

Diesel and gasoil inventories in the Amsterdam-Rotterdam-Antwerp trading hub continued to rise however -- up 2.1% week on week to 2.631 million mt in the week to Dec. 16, Insights Global data released Dec. 17 showed, and 9.6% higher than the same period a year ago.

Meanwhile, the Mediterranean region, in particular the East Med, continued to be tight as a result of no incoming arbitrage cargoes, although it was thought to be balancing.

"It has been tight, but there are some volumes available," a Med-based trader said Dec. 21.

CIF NWE and CIF Med cargoes were assessed up $1.50/mt on the week at $3/mt and $6/mt over ICE LSGO futures respectively Dec. 21.

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