Europe diesel premiums fall due to increased refinery output

06 December 2012 15:47  [Source: ICIS news]

LONDON (ICIS)--Premiums for European ultra low sulphur diesel (ULSD) continue to face downward pressure, as a result of increased production following the completion of the seasonal refinery maintenance period, sources said on Thursday.

Furthermore, a number of Europe’s refineries are said to be running at full capacity, further boosting supply.

On Wednesday afternoon, a ULSD cargo traded at a premium of $29/tonne (€22/tonne) over December ICE gasoil. This compares with a trade at December ICE gasoil plus $57/tonne on 26 November.

ULSD barges have followed the same pattern, with premiums to December ICE gasoil in the early $20s/tonne during recent days, having softened significantly from the early $40s/tonne at the beginning of last week.

Premiums for German 50ppm gasoil have also fallen to the early $20s/tonne over December ICE gasoil, compared with the early $30s/tonne a week earlier.

With the European diesel markets structurally short, refineries undergoing maintenance and inbound arbitrages from the US having been closed for several weeks, ULSD premiums were driven to exceptionally high levels in October and November.

By last week, however, an arbitrage was open from the US to Europe. Indian volumes were also said to be bound for northwest Europe.

This increased supply is therefore welcome, significantly easing the market tightness that had persisted since the summer.

A ULSD barge trader said: “Premiums [over front-month ICE gasoil] are now back to what used to be normal for a long time. We’re in the mid-$20s/tonne now, which is still too high, but a bit better. We had [premiums of] $54/tonne, $55/tonne [and] $57/tonne at the beginning of November.”

These lower prices have had little impact on demand for ULSD, however.

“21.5kt traded in the barge market yesterday,” the trader said. “But these are the same levels of buying as before [premiums softened considerably]. The reason is that people really need diesel, physically. They have to buy [regardless of price].”

($1 = €0.76)

By: Jo Pitches
+44 208 652 3214

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