Europe diesel demand down, sellers hold back on switch to contango

05 December 2013 16:44  [Source: ICIS news]

LONDON (ICIS)--European diesel barge premiums over ICE gasoil futures have fallen week on week on the back of a steep drop in demand, but a switch to contango in the futures market and a potential loss of imports has capped losses, industry sources said on Thursday.

On Monday, premiums over December ICE gasoil futures declined to $6.50-8.00/tonne FOB ARA from $11.00-14.00/tonne during the previous week.

Demand for diesel has traditionally declined during the start of the cold weather. "It is a dead market," a trader said.

However, by mid-week the premiums recovered some of the losses made on Monday and climbed slightly to $9.00/tonne as traders started to refrain from aggressive selling because of the futures contango.

A contango – where future prices are traded higher than the current month’s price – discourages aggressive selling as traders can afford to store product away for better-priced deals in the future. 

Meanwhile, losses were also capped by the closing of the arbitrage window from the US to Europe, leading to a potential loss of supply. Europe is short on diesel and is dependent on excess supplies in the US to meet its need for the transport fuel.

On Wednesday, the US Energy Information Administration (EIA) revealed distillates stocks in the country had risen by 2.6m barrels last week.

The increase could have meant a rise in imports, but a simultaneous hike in transatlantic freight rates has shut the US arbitrage window, a second diesel trader said.

"I think the arb is indeed closed because of the higher freight. But it is not the case that it is a no go at all," it said.




By: Cuckoo James
+44 (0) 208 652 3214

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