Northwest Europe distillate markets face oversupply on poor demand

11 January 2013 16:05  [Source: ICIS news]

LONDON (ICIS)--Northwest Europe’s mid-distillate markets are facing an oversupply as a result of poor demand, plentiful production and open inbound arbitrages, sources said on Friday.

“There seems to be a surplus in the market now,” a gasoil/ diesel cargo producer said on Friday.

“There’s not much demand, and there also seems to be a lot of Russian diesel coming into the market. Also [there is] talk that an arbitrage from the US might open up.”

With the northwest Europe ultra low sulphur diesel (ULSD) market structurally short and usually experiencing healthy demand, the situation is unusual.

No ULSD cargo trades have been reported this week, and just a small number of bids and offers have been heard in the afternoons.

The producer said: “There was not so much demand during the holidays, and product has been stocking up due to the non-working days.”

However, this ULSD oversupply is expected to be short-lived.

“Yes, I think it will be better towards the end of the month,” the producer said.

On Thursday afternoon, a ULSD cargo was offered at February ICE gasoil plus $23/tonne (€17/tonne).

The German 50ppm gasoil market is also experiencing long conditions.

A trader in this market said: “It’s very quiet. There’s plenty available, people want to get rid of it. There’s selling pressure, not much buying. People are offering me [material], but I don’t think I should move yet. There’s lots around.”

Early Friday afternoon, 50ppm premiums to February ICE gasoil stood at $16-18/tonne, but the implication is that they could fall further.

The mild winter weather experienced so far has meant that there have been few requirements for heating fuel. Furthermore, German consumer stocks are thought to be quite full, standing at around 58%. This means that unless there is a prolonged period of cold weather, end-users are able to hold back from buying heating oil for a considerable time.

“We will get cold weather today,” the trader said. “Temperatures could fall to minus 3°C, minus 5°C. But it’s only forecast to last a week.”

The source agreed that this would unlikely be sufficient to rejuvenate demand for heating fuel.

Poor refining margins have recently led to refinery run cuts in the Mediterranean, tightening the product markets there.

When asked whether the same could occur in northwest Europe, the producer said: “Not at the moment, but it could happen if [refining] margins worsen again.”

($1 = €0.75)

By: Jo Pitches
+44 208 652 3214

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