The Mediterranean desulfurization margin -- the diesel cargo premium over gasoil -- has risen to a more than six-month high on the back of continued prompt tightness in the diesel market and good availability of gasoil cargoes.
CIF delivered Mediterranean diesel cargoes closed at $26.25/mt above gasoil cargoes on Thursday, the widest difference between the two since May 4.
The desulfurization margin has been above $20/mt for the last several weeks, with traders saying refineries had taken advantage of the weakness in gasoil to buy cargoes and refine them into diesel over that time period.
Most of the gasoil purchased is typically higher in sulfur content than the standard Spanish B&C grade winter heating oil traded in the region.
According to traders, refineries typically look to lock in the difference in price between the two products in the swaps market.
November CIF Mediterranean swaps were last seen trading at $28/mt on the ICE block while the November Mediterranean gasoil swaps were last seen trading at $6.75/mt -- putting the spread between the two at an attractive level of $21.25/mt, traders said.
The diesel market in the Mediterranean has faced some prompt tightness of late, following a closed arbitrage from the US over the last several weeks and strong demand in the east Med, particularly Turkey.
"In Turkey demand is not too bad... Israelis aren't selling, there's a little less from the Black sea as well and good demand in the east Med," said one trader.
Meanwhile in the gasoil cargo market, several trades were seen at the close over the last several days, although volumes continue to be offered in the region.
Despite the continued increase in the desulfurization margin, traders said that current refinery maintenance in the Mediterranean was also a contributing factor in the latest increase in the margin.
"It's a bit circular. Yes the desulfurization margin is increasing but at the same time it's because some of the refineries are in turnaround and won't buy these cargoes," said a second trader.
