The Northwest European ultra low sulfur diesel cargo market moved back into contango Monday as high refinery run rates and low demand left the prompt market oversupplied.
The balance February 10 ppm CIF NWE cargo swap was assessed by Platts at a discount of $1.50/mt to the March swap, from a $0.50/mt premium on Friday, when the structure was largely driven by the strong backwardation in the ICE gasoil contracts.
Recent strong refinery margins have resulted in high runs, boosting availability of diesel cargoes, while high outright prices and cold weather have slowed end-user demand.
One supplier said that there was "plenty of diesel around...an overhang," despite more spot buying after the reduction in supply from Petroplus' refineries.
The contango comes despite the March ICE gasoil futures contract trading at $4.25/mt above the April contract at 1120 GMT Tuesday.
One trader added "I think the ICE gasoil time-spread might go weaker than where we see them this morning...creating a better [diesel] contango."
The warmer weather has seen a drop in some heating oil demand, traders said Tuesday, with the cold weather a key element in driving gasoil structure.
However, the gasoil backwardation is at odds with the fundamentals of the ULSD market, where demand remains restrained and supply steady.
