Products: ULSD Under Pressure as Refiners Return

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Diesel came under renewed pressure in Europe amid Covid-19 lockdowns and local refiners emerging from spring maintenance. Ultra-low-sulfur diesel (ULSD) cargoes were pegged at a $3 per metric ton premium to front-month ICE low-sulfur gasoil futures at the Apr. 20 close, down from a $3.50/ton premium a week ago and $6/ton at the start of the month. Just one cargo changed hands in the end-of-day pricing window in that time: Gunvor selling 30,000 tons to Glencore into Amsterdam May 11-15 at a $1/ton discount to Platts’ floating assessment on Apr. 20. Offers outweighed bids in the window, including PetroIneos offering fuel on board the tanker Hafnia Malacca due to load Russian ULSD at Primorsk in the coming days. Heavy European refinery turnarounds and limited imports have been keeping a tight lid on ULSD supplies in recent weeks but that is starting to change. Some 1.4 million barrels per day of European refining capacity was off line last month -- when the region's crude intake was at a nine-month low -- but planned April shutdowns are much lighter at only 800,000 b/d. The US is entirely out of Europe’s diesel supply picture at the moment, with fuel still more likely to head in the opposite direction. East of Suez flows are also down, in part because of last month’s Suez Canal hiatus, allowing Russian exporters to corner any regional buying that appears. Everything now depends on vaccination rates as Europe’s route out of lockdown. Mobility data from Apple show driving route requests still down 10%-20% on pre-Covid-19 levels in key fuel markets Germany, France, Spain and Italy but up 3% in the heavily vaccinated UK. EU jab rates are still behind the UK -- at 26% versus 63% -- but gaining rapidly. Market commentators reckon at least a 50% vaccination rate is needed before fuel buying can start to recover. Discounts for Russian high-sulfur fuel oil (HSFO) versus crude oil have meanwhile narrowed sharply. Trans-Atlantic HSFO sales from Europe are running at their highest since August as US refiners ramp up gasoline production with almost half a million tons leaving last week. Russian HSFO has found a new home as a US refinery feedstock but demand collapsed last month after freak winter storms knocked out processing equipment. Product Prices $/ton, c.i.f. basis Apr 20 '21 Apr 13 '21 Chg. ICE LS Futures (front month) 519.00 509.50 9.50 ICE LS Futures (second month) 521.50 511.75 9.75 0.1% Gasoil NWE* 526.50 512.50 14.00 0.1% Gasoil Med* 520.00 505.00 15.00 10 ppm Diesel NWE* 526.75 511.25 15.50 10 ppm Diesel Med* 528.50 514.25 14.25 HSFO NWE* 362.00 346.00 16.00

Oil Demand, Oil Supply, Oil Tankers
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