The timespread for 500 ppm gasoil swaps in Singapore widened to a four-month high of 83 cents/barrel for May/June Monday, reflecting a tighter market during the regional refinery maintenance season, a narrowing East/West spread and expectations for higher demand during Ramadan and summer, sources said Tuesday.
The May/June gasoil timespread rose 18 cents/b from Friday. The prompt inter-month timespread was last higher November 29 at $1.38/b.
A steeper backwardation indicates supply tightness and firmer demand for prompt barrels versus the later month.
Planned refinery maintenance in Asia Pacific and the Middle East has tightened May gasoil supply, particularly for low sulfur grades.
Trade sources expect Saudi Arabia to turn to the East of Suez for gasoil cargoes, amid unworkable economics for moving gasoil from Europe to the Red Sea, following a recent narrowing in the Exchange of Futures for Swaps or EFS spread.
The EFS is an indicator of the relative strength of the FOB Singapore 500 ppm gasoil swap against the ICE 0.1% sulfur gasoil futures.
"I don't think it's profitable to move gasoil from the Mediterranean or ARA [Antwerp-Rotterdam-Amsterdam trading hub] with the EFS this narrow," a Singapore-based trader said. "Red Sea buyers now have to turn to Asia or the Middle East for their cargoes."
Gasoil typically moves from the Middle East and Asia to the Red Sea when the EFS spread is negative, and from the East of Suez to Europe when the spread falls below minus $15/mt. It is theoretically viable to move gasoil from the Mediterranean to the Red Sea when the EFS spread turns positive.
Platts assessed the May ICE gasoil EFS spread at $1.35/mt at Monday's Asian close, down $5.80/mt from Friday.
Sources said the narrowing EFS was likely a result of a stronger May/June backwardation on the ICE gasoil futures contract, reflecting a firmer European gasoil market. May/June ICE gasoil was at $3/mt at Monday's Asian close, up from a contango of minus 25 cents/mt a week earlier.
Saudi Arabia usually imports more gasoil in the summer for power generation during heavy air-conditioning demand. Summer in the Middle East typically spans May-September.
