ICE gasoil in contango out to October, steepest in two years

Quantum Commodity Intelligence – ICE gasoil futures are showing a contango market structure across the first six contracts for the first time in two years.

Timespreads on May/October (M1/M6) ICE gasoil contracts were marked at an $11.50/mt contango on Wednesday, its steepest since at least March 2021, according to Quantum data.

May/July (M1/M3) spreads were marked at a $1.75/mt contango, its widest since August 2021.

And at the very front of the curve, May/June (M1/M2) spreads were assessed at a contango on Wednesday for the first time since February.

Taken together, it is the first time the whole curve from front to six-month contracts has been in contango for two years.

It is a dramatic turnaround for the distillate market, which had been in steep backwardation for much of the last 15 months as Russia's war in Ukraine threatened to throttle supply to its biggest market – Europe.

The successful redirection of that supply – either directly or indirectly – has eaten away at any sense of shortage since western sanctions came into force three months ago this week.

That has combined with a softening economic outlook and diesel's role as an industrial fuel.

Traders turned net short on ICE gasoil futures at the end of last month for the first time in 2.5 years, which will have contributed to the contango structure as more positions are closed out at the front of the curve where liquidity is highest.

A contango market structure - where prices are higher further out - signals to suppliers to row back on output now, and there are already reports of refiners cutting runs in Europe and Asia.

A shift to gasoline output through the summer driving season and increased jet yields on a recovery in air travel this year should help reduce the diesel overhang as well.