European ultra low sulfur diesel premiums to the front-month ICE gasoil futures contract hit their weakest level in over four months Friday as large volumes flooded the region from the Americas and the Baltic.
Northwest European cargo cash premiums to benchmark gasoil futures were assessed by Platts at $10.50/mt Friday, the lowest level since January 21.
ULSD volumes coming across the Atlantic into Europe this month are likely to reach 2.0-2.2 million mt, the highest monthly volume so far this year, according to shipping volumes tracked by Platts and market sources. This also represents a rise of around 500,000 mt on April imports, with the bulk of the material coming from the US Gulf Coast as is typical, as well as the US Atlantic Coast, Canada and Venezuela.
Market sources also said that additional material from the Baltic region is being forced to compete with the transatlantic volumes this month and traders are resorting to offering it on the spot market. Several traders have also opted to break up their cargoes for sale into the Amsterdam-Rotterdam-Antwerp barge market.
With pressure on physical diesel cash premiums, several traders and refinery sources have suggested that run cuts may be likely in the coming weeks in Northwest Europe, as low premiums put pressure on refining margins.
The price of Dated Brent crude has risen over the last month, with several fields in the North Sea expected to shut for maintenance and repairs.
This strength, coupled with weak ULSD premiums, is weighing on refineries that have suffered from a weak margin environment since the start of 2013.
At least one trader said that he also anticipates ample exports in June to Northwest Europe following this month's increase in imports to the region.
"It could be a very weak market with all these volumes arriving in May and June. You could definitely see more people covering themselves and refineries having to cut runs," he said.
