Diesel East-West price spread nears 1.5-yr high amid supply concerns West, stable East
The front-month diesel East-West price spread hit its widest in 1.5 yr of slightly more than $73 per tonne (t) at Asia market close, LSEG data showed on Monday, underscoring supply concerns in the West and steady Asian fundamentals.
This spread, typically measured by the exchange of futures for swaps (EFS) which is the difference between same month ICE gasoil futures with Singapore paper swaps, was last at such wide levels in early March last year, the data showed.
July's EFS values have been widening since June 24, with the July ICE gasoil contracts expiry due on Thursday.
European markets have been underpinned by limited shoretank inventories amid some unexpected refinery troubles in the past month, traders and analysts say, while Asian prices remain driven by sufficient supplies and overall mixed demand across the different regions.
"Supply-side constraints continue to influence the balance. bp Rotterdam and Norway's Mongstad refineries faced disruptions in June, cutting regional output... low inventories and refining constraints have left the distillate market sensitive to external shocks," said LSEG analysts in a client note late last Friday.
"This sharp backwardation is a strong signal of near-term supply pressure, particularly amid lower arrivals and as uncertainty grows over the future of the UK's 107,500-bpd Lindsey refinery, whose parent company recently entered insolvency."
Meanwhile, the price spread between July and August ICE gasoil futures was at its widest backwardation of more than $50 per ton since December 2023, LSEG pricing data showed, up from $44 a ton last Friday and extending gains from when the Israel-Iran conflict started.
On the other hand, gains in Asian markets have been capped by a bout of ample supplies since this month, with August supplies still likely to remain at similar levels given thinner refinery maintenance schedules, traders and analysts said.
"Asia's market will be awash with supplies ahead, driven by minimal planned maintenance and an export surge from key suppliers in the region...Asian diesel complex could thus face significant headwinds going forward," said FGE analysts in a client note.
August spot sales have just kickstarted, with both Taiwan and South Korean oil majors starting their offers since late last week, while July sales from South Korea's refiners were earlier upbeat.
In comparison with European market movements, Asian gasoil prices and overall timespreads have not been seeing that many fluctuations, a Singapore-based trader said.
The July-August timespreads were mostly at $1.20–1.50 a barrel in the past one week, closing at around $1.25 on Monday, records showed, compared with around $1 a barrel in end-June - translating to only a $1.50–$3 per ton gain.
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