London — CIF NWE diesel cargoes took a battering Wednesday as a record volumes from the main diesel export location of Primorsk pressured the market at a time when seasonal demand weakness typically prevails.
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Cadastre-se agoraCIF NWE cargoes were assessed at just 25 cents above the January ICE low sulfur gasoil futures contract, the lowest since October 11, when they were assessed at a discount of $1.25/mt.
With the Primorsk program for January coming out at a hefty 1.462 million mt -- the largest ever by around 60,000 mt, according to Platts records -- the few buyers in the market are spoiled for choice in terms of cargoes on offer.
"The Primorsk program is heavy... so till January goes into last decade I would see weakness," a source said, echoing the sentiment of others in the market who are waiting for the weakness to pass.
A weak differential at this point in the calendar is not out of the ordinary, with much of January experiencing a post holiday lull in demand. "Demand is lackluster, which is normal for this time of year," a source said, adding that he also expects differentials to improve moving further into January.
While the prompt ICE low sulfur gasoil futures spread, a measure of the overall health of diesel and distillates in Europe, was still in a shallow contango of around $1/mt Thursday morning, the February/March structure was in a backwardation of around $1.50/mt, according to ICE data.
As such the market is generally bullish for February but there were a few notes of caution nevertheless, with some seeing the spread as not moving beyond $2.00/mt backwardation given current fundamentals.
--George Shaw, george.shaw@spglobal.com
--Ahila Karan, ahila.karan@spglobal.com
--Edited Alisdair Bowles, alisdair.bowles@spglobal.com