The return in December of a number of European refineries from scheduled turnarounds should provide some relief to an ultra low sulfur diesel market struggling to find enough product to meet demand, market sources said Thursday.
"Right now it's a seller's paradise as there are four or five people that need product that will have to pay up," one Mediterranean cargo trader said Thursday. "But eventually product will have to arrive from Asia as people come off from turnaround."
The European diesel market which is net short of product has been severely constrained supply-wise by a sharp drop off in Russian export volumes coming at the same time as scheduled refinery maintenance in Europe and a steeply backwardated market that provides no incentive to store product and makes fixing arbitrage cargoes difficult, sources said.
"Europe is short and has been absorbing cargoes from the East and the US all year," one NWE cargo trader said Thursday. "But while the US volumes have remained largely stable, cargoes from the East have dropped off and the Russian program has almost dried up."
"Normally we would expect 400,000 mt from [the Russian port of] Vysotsk and 300,000 mt from Primorsk but we've seen that for November the Primorsk program is just 80,000 mt," the trader added. "20,000 mt of that loaded November 2-3 and the rest is two 30,000 mt cargoes loading November 24-25 and November 28-29 so there is nothing now until early December arrival."
Russian exports have dropped dramatically since the country finally introduced a ban September 16 on domestic consumption of high sulfur 0.1% gasoil with the country moving to lower sulfur grades such as 10 ppm ULSD. This reduction in Russian volumes saw the CIF NWE 10 ppm ULSD premium to ICE gasoil futures spike to $63.75/mt, the highest it had been since May 15, 2008 Platts data shows. The premium has subsequently fallen but remains historically strong to be assessed at $50.75/mt Wednesday.
This downward trend could continue into December with Russian volumes expected to improve for that month as well as a number of refineries back to full production, sources said.
"In December the barrels from Russia should come back plus on top of that some refineries such as TRN will be back but it is very much needed as stocks as empty, including inland and secondary stocks," the NWE cargo trader said.
"$50/mt premiums shows that fundamentally it is a strong market. But a large part of that strength has been due to turnarounds and there are two or three refineries coming back in November and everyone will be back in December," a second NWE trader said.
"So although premiums are strong the market could flip around very quickly, especially with four or five on spec cargoes coming over from the US. If that happens timing will be key as you don't want to be the one left with a cargo if it becomes long again," he added.
