The Asian PO-GO spread between front-month crude palm oil futures on the Bursa Malaysia and front-month ICE gasoil futures was assessed at $150.10/mt Wednesday -- the narrowest the spread has been since December 10, 2015, when it was assessed at $148.44/mt, according to S&P Global Platts data.
The spread has been narrowing since May, as palm oil prices on the Bursa Malaysia have fallen due to increased production while gasoil prices have risen from lows witnessed earlier this year.
Palm oil prices had started to climb from December 2015 onwards on falling palm oil production caused by the severest El Nino on record since 1997, while gasoil prices had remained persistently low.
This caused the PO-GO spread to escalate and on April 5 it hit its highest recorded level of $380.68/mt, Platts has reported.
The PO-GO spread indicates whether an arbitrage should be open for PME trading to occur.
At spread levels above $200/mt PME transactions were very thin since European blenders preferred to buy substitute oils that were cheaper.
However, as the PME spread narrowed below $200/mt during May, it began to look more viable as a blending material.
PME transactions began to happen in June once the PO-GO spread headed south, and European blenders showed renewed interest.
