Wholesale premiums for ultra low sulfur diesel, Europe's dominant fuel, hit a five-month high Thursday, boosted by reduced production at refineries and low import volumes from the US and India, said traders Friday.
The Northwest European cargo premium was assessed at front-month 0.1% gasoil futures plus $40/mt CIF ARA, its highest level since November.
The fuel has traded continually above its level of the previous four spring seasons in recent weeks, underscoring a tight supply situation.
Traders have cited a number of factors, including poor margins for other refined products such as jet fuel and gasoline, which have forced some European refineries to lower output, and extended maintenance at other plants.
"Right now, it's very short...it seems with these horrible margins all the refineries are cutting runs," said one trader. "I think everyone who can cut will do it."
Traders agreed that many refiners in the Mediterranean basin had reduced production, thus affecting diesel availability. Refineries in Greece, Italy, Romania, Spain and Israel have all cut runs, they said.
Some refineries in Northwest Europe have followed suit and traders said others would return from maintenance works later than expected, perhaps as a result of the poor margins.
Lower runs will not necessarily translate into lower diesel output at every refinery, however, as some will simply choose to reduce the production of other refined products such as gasoil, said traders.
"It's looking very tight, we're supposed to be in a month when refineries are returning but demand is much better," said a second trader.
In addition, imports from the US and India are expected to be low over May, contributing to the tight supply situation.
Diesel consumption is increasing in line with seasonal needs, traders said. Better weather conditions encourage drivers to use their car.
Some countries such as Turkey are also seeing a genuine increase in diesel demand driven by a growing car fleet, even if others such as Italy are seeing consumption losses linked to the poor economic situation.
