Mediterranean ultra low sulfur diesel cargoes are trading $10.25/mt above the Northwest European cargoes, the widest spread between the two regions since January 17 on tight prompt supply in the Med.
The Med cargo cash premium to the front-month March 0.1% ICE gasoil futures contract closed at $25.50/mt Tuesday, its highest of the year according to Platts data.
Recent pressure from a strong front-month NYMEX heating oil contract and 500ppm Singapore swaps relative to the 0.1% gasoil contract have proved difficult for buyers to bring in arbitrage cargoes into a market that relies on arbitrage barrels to meet short requirements, particularly ahead of the impending refinery maintenance period.
"The HOGO is shut for sending volumes across the Atlantic [to Europe], I don't expect volumes to come from there, and the East-West looks terrible. There are no arbs," said one trader.
The premium of ICE 0.1% sulfur gasoil futures to Singapore 500ppm gasoil swaps, exchange of futures for swaps (EFS), for April remains low at $3.15/mt despite the rally at the start of the week, according to Platts data, supporting market reports that arbitrage movement of distillate cargoes from Asia and the Middle East to Europe remained unworkable, given freight economics.
Traders also say that they expect significantly lower volumes coming from the US amid persistent demand in the North American continent and strong demand for cargoes in South America.
"At the moment, whatever loads in the US Gulf, we're seeing virtually nothing of it," said a second European trader.
According to Platts vessel tracking software cFlow, noticeably lower volumes of clean tankers have loaded in the US Gulf and are destined to Europe relative to last month.
Traders also said that the recent closure at the 321,000 b/d ISAB refinery had contributed to the supply tightness in the region.
The Lukoil owned refinery closed down after a fire broke out last week but has since restarted.
According to one market source, the refinery was expected to export six to seven cargoes of ULSD in March.
In the swaps market, March 10 ppm CIF Med cargo swaps reached a $5.75/mt premium over 10ppm CIF NWE Cargo swaps Tuesday at $23.50/mt, the widest in over a year, with front month swaps also at a strong $3.75/mt premium in the Med.
However traders said the Med swap would have to rise further to make bringing arbitrage barrels economical.
"We cannot sustain low 20s [on swaps] for much longer... Everything we have on contract for arb has to stay locally, it just doesn't make sense to bring it [into the Mediterranean]. I have some space in my units but it makes no sense to fill them right now," said the first trader.
