Med ULSD cargo premium nears 3-month high on tight prompt supply

Mediterranean ultra low sulfur diesel CIF delivered cargoes saw a sharp increase in premiums Tuesday, as refinery run cuts and a lack of arbitrage flows tightened supplies against a pickup in prompt buying interest on the day.

It closed Tuesday at a $28.75/mt premium over front-month July 0.1% ICE gasoil futures, the highest since April 4, and a $10.50/mt premium over Northwest Europe.

“Demand is peaking for driving season in the Med but refiners are cutting runs and the arbs are currently closed from the US due to higher freight, so its a combination of factors,” said one trader.

As tight supply supported premiums, those barrels already on the water found buying interest Tuesday, with Shell selling the 50,250 dwt Ridgebury Alexandra to Trafigura, which was seen loading at the Oiltanking facility in Houston and is in the Gulf of Mexico sailing to Europe.

Although there were still larger vessels available to the market, demand for 30,000 mt tankers into Mediterranean ports outstripped supply, according to traders, with USGC-Mediterranean freight rates for a clean 38,000 mt tanker relatively high at $37.14/mt, making the arbitrage uneconomical.

Despite a steep contango on ICE 0.1% gasoil futures, which closed at $4.25/mt, market fundamentals in the Mediterranean shifted the forward curve structure into a backwardation, with the balance-month 10 ppm CIF Med differential swap closing $4.75/mt above the front month swap at $22/mt.
Source: Platts