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Mediterranean diesel cargoes at highest level against NWE in over 5 months

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Platts Global Alert - Oil

Mediterranean diesel cargoes at highest level against NWE in over 5 months

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Benchmark price assessments for refined oil products in key markets

Daily reporting of trading activity for major refined products in Europe

Gasoline and diesel blending component pricing and analysis

Expert analysis and market commentary from our International team of journalists

London — Mediterranean ultra low sulfur diesel cargoes reached $8.75/mt above Northwest European cargoes Friday, the widest spread between the two regions since November 24, amid prompt supply tightness in the southern region and healthy availability of Baltic-origin cargoes offered in the north.

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Traders said a combination of maintenance in the market and a narrow desulfurization margin between 0.1% and 10 ppm product were lending support to the Med market.

At that spread, barrels on route to Europe from the US might likely deviate into the Mediterranean to capitalize on the stronger premiums there, traders said.

"At this price all arb oil should be going into the Med," one trader said Monday.


"In general, the reason US barrels go north all else being equal is cheaper freight ex-US and less restrictive ports in the north. In principle if Med is about $4/mt above the north it starts justifying the diversion to the Med, but [sometimes] what you see on cash doesn't necessarily get replicated on paper, at the moment [though] that spread is performing as well [supporting the arb to the Med]," another trader said.

Prompt balance-month 10 ppm CIF Med cargo differential swaps were trading at $11.25/mt over front-month low sulfur gasoil futures during European morning trade Monday, ICE data showed, with their northern counterparts last assessed by Platts at $4.25/mt Friday.

However, freight and logistical expenses for delivery into the prompt Mediterranean market might preclude some of the US barrels from heading to the region, sources added.

"As soon as the Med arb hubs are filled the balance will go north. Lavera, Barcelona, Fiumicino are the main ones, Koper you can bring arb cargoes into but the freight is expensive," the second source added.

According to the Worldscale Association, the 2015 outright rate for Medium-Sized clean vessels between Houston and Le Havre is $22.70/mt, compared with $24.41/mt for Lavera and $27.05/mt for Koper, where the outstanding interest for CIF cargoes was last shown.

With the USGC-Med Worldscale rate assessed at 97.50 by Platts Friday, it costs approximately $4.24/mt more to deliver to the Mediterranean than to the north, even before factoring in demurrage expenses and additional logistic considerations.

However, traders said that a wide East-West spread -- measuring the differential between Singapore 500 ppm gasoil swaps (used as the pricing basis for Persian Gulf barrels) and European low sulfur 10 ppm gasoil futures -- has been supporting the flow of Middle East barrels into the East Mediterranean market.

"A few [people] got short in May but the arb is open from the East, I do not think the [Med/North] spread will stay there for a long time...as the East is open I don't think the US [arbitrage] will work, it works for West Med but yet again the Mid and East Med is short, some Long Range [vessels] are already hitting the Med from the East...between 65,000 mt and 70,000 mt cargoes," a third source added.

So far this month a number of USGC cargoes loaded for Europe have diverted from courses north to the Med.

For May arrival into Europe, the 45,728 dwt Island Express was shown arriving to Koper, Slovenia Monday, with the 45,948 dwt Sea Healios and 50,800 dwt Seasalvia on the water for Tarragona, Spain, and the 39,825 dwt Hafnia Karava for Gaeta, Italy.

For later arrival this month, the recently departed 35,820 dwt Nordic Ruthand and 48,673 dwt Seamuse, were both pointing for Algeceras Monday according to Platts vessel tracking software cFlow. The 43,596 dwt UACC Manama that left the USGC port of South Louisiana last week appears to have changed course for the Mediterranean over the weekend, after initially heading southbound towards the Caribbean, and is now due to pass Gibraltar May 20, cFlow showed.

--Robert Friend, robert.friend@platts.com
--Maude Desmarescaux, maude.desmarescaux@platts.com
--Jhoan Cordoba, jhoan.cordoba@platts.com
--Edited by James Leech, james.leech@platts.com