Distillate summary: Weaker Europe drags Asia, US distillates lower
Quantum Commodity Intelligence - A sharp increase in diesel imports and a ramp-up in refining continued to pressure diesel margins in Europe, dragging down Asian and US values, while squeezing arb spreads.
Imports into Europe are set to reach 4.9 million mt this month after hitting a high of 6.4 million mt when two-thirds of French refining capacity was hit by month-long strike action, Refinitiv data showed.
The last remaining strike action in France, at the oil depot at Total's Feyzin oil refinery, was called off this week after a salary agreement, meaning all French refineries are now back to near full capacity, putting further pressure on diesel margins.
Diesel barges traded in the ARA port hub tumbled over $100/mt on the week to $1,009/mt by the Friday close, with the crack falling over $11/b to $39.97/b, a level last seen since mid-September, Quantum data showed.
Diesel cargoes have also been diverted from the Med to northwest Europe, following tight supply there, which has caused the premium for cargoes in the north to collapse from $41.25/mt to $14.25/mt over the course of the week.
Yet despite the ramp-up and the higher imports, independently held diesel/gasoil stocks in ARA fell to 1.7 million mt this week, down 20% on the year, Insight Global data showed.
That is in part due to the backwardated market structure, which discourages stockpiling even as the EU ban on Russian imports is less than three months away.
Some 40% of the November diesel imports continued to come from Russia, Refinitiv data showed.
The backwardation in Europe has, however, eased, with the spread between the two front-month low sulfur gasoil diesel contracts down to $5.25/mt, its lowest since before the war in Ukraine broke out.
Strike action could, however, quickly return to Europe with the ultimatum by two Dutch unions representing works at the BP Rotterdam refinery – the largest in Europe – set to expire by noon on Monday.
The weakness in Europe dragged down the 10ppm cargoes traded in Singapore this week, as the EFS – the difference between European LSGO futures and 10ppm swaps – narrowed to a two-month low.
The east-west spread, basis December, nearly halved on the week to -$46.44/mt, which should halt the eastbound flows.
Spot 10ppm cargoes were last assessed at $135.30/b, down $1.50/b on the week and leaving the crack just below $40/b.
Margins in the US also came under pressure, even as stocks fell, with the NY Harbor ULSD future falling over 7% on the week to $3.62/gal, while WTI crude was down less than 3% at the same time.
US distillate fuel stocks fell to 106.2 million barrels, EIA data showed, unwinding two weeks of gains, and are back near their lowest level since 1982 ahead of the winter season.
That has propelled the HO-GO spread – the difference between US heating oil futures and European gasoil futures – to $0.363/gal ($113.58/mt) versus $0.335/gal a week ago, which will limit transatlantic flows of US supplies.
Jet firms
The relative weakness of European diesel markets and a revamp in forward airlines bookings continued to support the jet market and extend its premium over diesel.
Jet cargoes landed in northwest Europe stood at a $39.75/mt premium over diesel CIF NWE cargoes, its highest since late August and up from -$57/mt a week ago.
International airline association IATA said this week that international bookings have "greatly increased" after more countries in the Asia Pacific region ended Covid-19 related travel restrictions.
Ryanair's CEO Michael O'Leary increase the budget airline's 2022 passenger outlook, saying people continue to spend on travelling despite soaring inflationary pressures and a looming recession.
Jet fuel cargoes CIF NWE were last assessed at $1,109/mt, with its crack a touch lower on the week at $44.92/b.
Cargoes FOB Straits followed a similar dynamic, with the spot rising to $127.60/b on Friday, nudging the crack higher to $32.26/b, up $1.50/b on the week.