Europe's 0.1% gasoil market is the only European middle distillate to have re-entered backwardation, Platts data shows, as a shift in the structure of ICE gasoil futures contracts accentuates the support that recent supply tightness has brought to the market.
The move sees the gasoil market, a middle distillate that has faced an uncertain future in Europe's drive to lower the sulfur content of oil products, emerge as one of the stronger performers in the region.
"There is quite some strength at the front, there is good pull from north African buyers and desulfurization demand is still good," a trader of Mediterranean gasoil said.
Barge traders in the Amsterdam-Rotterdam-Antwerp region expressed surprise at the move in the barge market, since exports from the region are thought to be slowing, leaving product likely to build up.
Despite that, the gasoil 0.1% barge crack was up $0.86/barrel day-on-day, at $14.54/b, its highest value since April 11, according to Platts data.
Physical 0.1% barge premiums were also up by $2/mt to be assessed at minus $0.25/mt to the front month ICE gasoil futures contract, its highest level since July 28.
With Europe moving steadily towards a low sulfur heating oil future, as Germany, the biggest gasoil market completes a move away from 0.1% gasoil to ultra low sulfur 50 ppm gasoil, the higher sulfur grade has looked to new markets outside Europe.
The rush of big cargoes out of the region, to meet demand in South America, West Africa and the Red Sea, has left the domestic European market short of product and brought out support for the grade.
The move of ICE gasoil contracts into backwardation Thursday has underpinned the structural shift, but with the region's 0.1% flows moving out of the region in arbitrage flows, the resulting tightness has seen gasoil differential swaps accentuate the change.
Platts assessed the front month September swap to the second month October swap in a steep backwardation Thursday across the FOB Rotterdam barge, CIF NWE cargo and CIF Mediterranean cargo markets.
For the 0.1% FOB barge market, the September swap indication was assessed at parity to the October swap, with both gaining 25 cents to reach minus $1.25/mt.
The move was more pronounced in the cargo markets, with September CIF NWE swaps assessed at plus $5.75/mt, and October at $5.50/mt.
The Mediterranean saw the steepest structure, as active buying and a tight market supported expectations of strength in the region.
September was assessed at $10.25/mt and October at $8.25/mt.
The underlying ICE gasoil contracts also moved into backwardation Thursday, with Platts assessing September's contract value at $934.75/mt and the October contract 50 cents below at $934.25/mt.
At Wednesday's close, the October contract was assessed 50 cents above the September contract at $956.25/mt.
Swap values for the NWE jet market remain resolutely in contango, with September at $86.50/mt and October's swap $3.75/mt higher, redressing the underlying gasoil structure.
Diesel is also holding in a contango structure across Northwest Europe and the Mediterranean, with both the jet and ULSD markets facing low demand and steady supply.
