01 February 2013 15:37 [Source: ICIS news]
LONDON (ICIS)--German 50ppm gasoil premiums to front month ICE gasoil are at their lowest level since January 2011 because of poor demand resulting in an oversupply, a trader said on Friday.
Early in the afternoon, premiums stood at February ICE gasoil plus $2-3/tonne.
“There’s masses of product everywhere, and demand is very, very low,” the source said. “Last week, when premiums were at $4-5/tonne, I thought they couldn’t go lower – but they did.”
Exceptionally mild weather for much of this winter has seen reduced requirements for heating fuel.
Furthermore, German consumer stocks are thought to stand at 58-59%, meaning that unless there is a prolonged snap of very low temperatures, there is little need for further end-user purchasing.
“Two to three weeks of cold weather might be possible in February,” the trader said. “But it’s not looking good [for the market].”
Further hampering trading activity is an ICE gasoil backwardation that has persisted for most of the winter.
Recent weeks have seen this backwardation steepen to a level that serves as a firm deterrent to buying for storage.
At 15.00 GMT, February ICE gasoil was at $1,000/tonne, while March ICE gasoil stood at $989.50/tonne.
“The ICE backwardation is the key factor,” the trader said.
The source added that if the ICE backwardation were to flatten out, interest in the product may increase.
“The euro-dollar exchange rate is also a problem,” the trader added.
($1 = €0.74)
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