ICE gasoil cracks sink to 9-month low on rising supply, imports
Quantum Commodity Intelligence - The ICE gasoil crack to Brent crude futures dropped below $30/b for the first time since March this week, as European supply swells on higher regional output and a jump in imports from China and Russia.
The premium between front-month low-sulphur gasoil futures and front-month Brent futures have not been this low since the start of the Ukraine war, when it became increasingly obvious that Europe would have to cut ties with its biggest single supplier.
EU sanctions on Russian oil products – which includes close to 1 million bpd of middle-distillates – are now less than two months away.
But gasoil's crack has softened as the deadline approaches, from a peak above $75/b in the middle of October down to $30/b now, as European suppliers rush to fill tanks with Russian diesel before the deadline.
Diesel loadings at the Russian Baltic port of Primorsk - one of the last before sanctions - are set to rise 17.5% on the month to 1.78 million tonnes in December, its highest for at least six months.
Higher arrivals from east of Suez have alleviated prompt supply concerns in northwest Europe further, after Chinese authorities lifted export quotas from October onwards.
It has also coincided with the end of a relatively heavy autumn maintenance schedule, buoying Europe's refinery output.
Inventories
Independently-held gasoil stocks in the ARA region are broadly in-line with the same time last year, having recovered around 15% from historical lows in the summer to around 1.7 million tonnes at the start of December.
Rising prompt supply pushed structure on ICE gasoil into contango last week at the front of the curve for this first time this year, with the front-month December contract around $3/mt below the January contract at Tuesday's London cash close and just under $2/mt Wednesday.
Gasoil's forward curve shifts back into backwardation again between January and February, implying a shortage again as sanctions take effect.
The curve on ICE Brent crude is in contango through to May 2023, highlighting a disconnect between crude and distillate markets next year.
Sanctions and a price cap on Russian seaborne crude exports came into effect this week, which most analysts agree will have a minimal impact on global crude balances at least in the short term.
It coincided with a drop in front-month ICE Brent crude to an eleven-month low under $80/b.
