Differentials for 50 ppm gasoil in Northwest Europe are currently cheap enough to be blended into higher sulfur grades to make a 0.1% sulfur gasoil, for which demand is greater than lower sulfur grades at the moment, according to trade sources.
Platts assessed 50 ppm gasoil FOB Rotterdam barges at a $6/mt premium to the ICE gasoil front-month futures contract on Tuesday, the lowest since December 9, 2011, when it was assessed at a premium of $4.75/mt.
The 0.1% gasoil FOB Rotterdam barge market was assessed at a discount of $1.25/mt to front-month ICE gasoil on Tuesday, $7.25/mt cheaper than the 50 ppm grade.
Platts does not assess any high sulfur gasoil grades in NWE, but traders said that at the current levels they have already seen blending taking place in NWE between the two gasoil grades.
The 50 ppm gasoil is the main heating oil grade for Germany, the largest heating oil market in Europe. But with the warmer weather as spring gets underway, demand for the product has fallen away in the last few weeks, further dampened by the high outright prices.
"There is no end-user demand at all. 50 ppm is a dead market in Europe now," one trader said.
Demand for the higher sulfur 0.1% heating oil is also thin in Northwest Europe, but there is demand for exports of this grade to South America, the Mediterranean and West Africa.
Higher sulfur grades (than the 1,000 ppm or 0.1%) can be blended into 50 ppm to get the gasoil specification for the export markets, traders said.
"But you need to have some rather cheap high sulfur, not that obvious these days. It would have to be rather Russian and potentially sulfur at 0.2% or so," a second trader said, noting that such blending is done only by certain players that have access to cheap high sulfur gasoil.
