London — The price spread between 10 ppm ultra low sulfur diesel and 0.1% gasoil in the Mediterranean has reached fresh multi-year lows, with the gasoil market going toe-to-toe with the diesel market, backed by strong seasonal demand.
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S&P Global Platts assessed 10 ppm diesel CIF Mediterranean cargoes at a 25 cents/mt premium to the 0.1% gasoil market Friday, down $1.00/mt day on day.
The last time the spread was that low was June 12, 2015, when gasoil priced $1.25/mt above the diesel market.
Heating fuel demand from Greece and France has increased seasonally over the winter months plus there has been additional volume imported into the Algerian market over December, which has been an instrumental factor tightening fundamentals in the Mediterranean of late.
When gasoil priced at a premium to diesel in June 2015, the principal factor was also heavy tendering from Algeria.
Algeria's Sonatrach tendered for six cargoes of 0.1% gasoil over December while in previous months it had been looking for two cargoes.
The tightness could continue into January, with Sonatrach again tendering for six cargoes. The cost of desulfurizing gasoil into 10 ppm diesel is around $5-$10/mt, leaving refiners little incentive to do so.
Where there has been short supply of gasoil, the increased demand in the Mediterranean basin, in many instances, has seen diesel used as a substitute.
Diesel has edged off as after Turkish demand faltered when domestic refining capacity increased with the return of the hydrocracker at the Izmit refinery earlier this month.
Europe has been going through the more or less expected slowdown, with excess cargoes on the market as holidays dent demand across Northwest Europe and the Mediterranean.
High freight, especially in the Mediterranean has also deterred potential buyers, with some anticipating a possible correction in the new year.