08 March 2013 11:51 [Source: ICIS news]
LONDON (ICIS)--Underlying demand for European mid-distillates remains poor despite some increase in market activity this week as a result of softer, flat prices stemming from weaker crude oil values, sources said on Friday.
"[There’s a ] Little bit more [business] indeed, although consumption [demand from retailers] is not more than normal, I have to say,” a 0.1% gasoil/ultra low sulphur diesel (ULSD) barge broker said. “For 0.1 [there’s] hardly demand here seeing as the season is almost over.”
A German 50ppm gasoil/ULSD trader said: “It’s [demand] not picking up ... there were six 50ppm trades yesterday, Shell bought several, but it’s not due to domestic demand.”
The source went on to say that this increased level of buying was just temporary.
“We bought a few clips at low [price] levels early in the week,” the trader added. “But there’s a $1/tonne contango [of ICE gasoil], it makes no sense to store [buy material to sell at a later date].”
While the the two front months of ICE gasoil recently moved into a slight contango of $1-2/tonne, following many weeks of steep backwardation, it is not sufficient to encourage buying for storage as the costs of doing so are not covered.
“No, [$1-2/tonne is not sufficient]” the broker said. “We should see -$4/tonne levels of contango at least [in order to stimulate demand].”
Furthermore, the ICE gasoil monthly contracts from April onwards remain backwardated.
The prospects for ULSD demand look at little more promising than for 0.1% gasoil, however.
When asked whether requirements for diesel should pick up as the summer nears, as is traditionally the case, the broker replied: "Well, a little bit, depending which region. France and Belguim are quiet, Germany has better demand than a few weeks ago, and Netherlands has pretty okay demand.”
Mid-distillates are traded at premiums or discounts to ICE gasoil.
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