Record high prices prompt Latin America to hit pause on much needed diesel tenders

Latin American tenders have gone into hiding as refined oil products reached record highs again March 7, with the product most in demand -- diesel -- the hardest to find, afford and ship.

ULSD and gasoil futures led refined products increases, largely because of Europe's dependency on Russian barrels, and inventories were already tight, especially after a frigid winter reduced US stocks.

NYMEX front-month ULSD settled at $3.9215/gal March 7, up 14.52 cents on the day and up $1.07 since Feb. 25 after Russia's invasion of Ukraine. Benchmark pipeline ULSD in the US Gulf Coast, where much of Latin America sources its distillates, set a record high at $4.0790/gal, or $171.32/b.

Delivered cargo assessments in Latin America, even accounting for a steep backwardation for delivery 15-30 days out, passed $160/b in many regions for ULSD. A steady wave of nearly daily purchase tenders around the start of February, including ones by Argentina for 18 cargoes of high sulfur diesel and by Petroecuador for nine cargoes of HSD, has dried up to just three heard last week by Peru and the Dominican Republic and for less than the usual sizes of gasoline, diesel and jet.

Lenny Rodriguez, team leader for Latin American Oil Analytics at S&P Global Commodity Insights, said there may be financial constraints at play or maxed-out lines of credit "given the extremely high price environment." The few deals going forward may be trying to avoid rising prices or to secure available cargoes, he said.

"They could also be anticipating that avails from the USGC might be pulled from Europe [if the Russian supply falters] and not enough supply will be there for them," he said. "Things are too fluid right now."

Platts assessments by S&P Global Commodity Insights rose $5.42 to $161.36/b for ULSD CIF Eastern Mexico, while the gasoline counterpart there rose 49 cents to $142.62/b and jet rose $1.04 to $151.94/b. ULSD cargoes rose $5.17 to $162.36/b in Santos, Brazil; jumped $5.82 to $165.35/b in Ecuador; rose $5.82 to $165.35/b in Peru; and increased $6.10 to $166.91/b in Argentina.

ULSD import parity prices designed to reflect costs based on the three prevailing days jumped $6.36 each in Colombia and Peru to $158.43/b and $164.05/b, respectively, while Santos' IPP rose $6.35 to $165.62/b. Betim in Brazil registered the highest ULSD IPP price, up $6.35 to $171.16/b.

"Only those short into South America can buy anything off the USGC, so there's not a lot going," one regional trader said, adding that demand was mostly for diesel, where cargo premiums and freight costs have increased as well. "It's very strong, but I don't think there is really a lot of product available. I don't see a lot of interest on gas or jet."

A second market source noted the wave of tenders seen a month ago has dried up, with Colombia failing to award two mid-February jet and ULSD tenders, Uruguay and Argentina no longer looking for gasoil as expected, and Ecuador unusually quiet. Petroperu appeared to have canceled several gasoline and distillate tenders due by end-February, but then sought 120,000 barrels of a ULSD/jet fuel combination cargo for mid-March -- a delivery that is quicker than normal and also 40% smaller than normal.

"I think prices are so high that they think twice before buying," the source said of companies in general. "Not only prices in the USGC, but also freight."

"I'm hearing everyone is looking but more on a stealth mode, not wanting to add too much noise to an already volatile market," a third trader said. "At this moment, nobody really knows what is going to happen, but they have waited as much as they can. I'm pretty sure we will see tenders coming out."