Gasoil volumes from Northwest Europe have been heading to the Red Sea, rather than from the traditional supply region of Asia, to meet rising demand for power generation in the Middle East, ahead of the Muslim holy month of Ramadan, driven by high prices in Asia and falling prices in Europe, traders say.
"We have seen a fair bit of volumes heading to the Red Sea from NWE," said a trader, with another adding "Volumes are moving on LRs to the Middle East, with strong Asian markets, some traders have more incentive to send NWE barrels."
The Asian gasoil market has risen in recent days, driven by stronger regional demand and expectations of a continued decline in Chinese exports in June and July.
With European gasoil prices lower than its Asian counterpart, reflected by a positive Exchange of futures for Swaps -- a proxy used for the East-West arbitrage -- and freight rates at four-year lows, traders have chosen to monetize this arbitrage by sending cargoes from NWE.
The July Gasoil FOB Singapore EFS was assessed at $3.83/mt at Singapore close Monday, while freight rates for a 65,000 mt Long range vessel between the UK continent and the Red Sea was approximately $1.2 million lumpsum, Friday, Platts data showed.
Saudi Arabia's Aramco Trading Company, issued a tender for 1.3 million barrels of 500 ppm gasoil for June loading, in late May, in addition to the unspecified amount of gasoil the company fixed in January on a term basis for delivery over March 1-October 31 to the Saudi Arabian ports Jeddah, Jizan and Ras Tanura. Shell is reported to have won the June tender at prices of approximately $4.50-6.00/barrel premium to the Mean of Platts Arab Gulf Gasoil assessment, traders said.
Vitol, Shell and BP were said to be suppliers for part of the term volumes and the companies bringing barrels over from Europe.
The CIF NWE cargo premium to ICE futures was assessed at $7.00/mt, Friday, up from $6.25/mt a week earlier, Platts data showed.
