Analysis: Novorossiisk marine gasoil prices under pressure from Istanbul, Piraeus

Bunker fuel suppliers at the Black Sea port of Novorossiisk have started cutting marine gasoil (MGO) prices due to tougher competition from suppliers in Istanbul and Piraeus.

Prices offered from the east Mediterranean ports of Piraeus and Istanbul fell significantly in July as pressure in the Mediterranean region eased, reversing the trend that has prevailed for the majority of 2015 where the Greek and Turkish ports were more expensive.

Delivered Piraeus MGO prices fell $79/mt from $611.50/mt July 1 to $525.50/mt July 31, while delivered Istanbul MGO prices weakened $86/mt to $505.50/mt.

The Med market has softened because of increasing competition, weakening barge market sentiment, macroeconomic factors and softening Brent crude and gasoil prices, diverging from fundamentals at the Russian ports, which are linked more into the domestic gasoil market.

“I am lowering prices [for marine gasoil] because of Piraeus and Istanbul,” a Novorossiisk supplier said.

A supplier in Istanbul meanwhile noted an uptick in business diverting from the Black Sea. “We have inquiries for MGO from vessels that are coming from Novorossiisk,” he said.

Since early July, Novorossiisk MGO prices have been trading higher than at both its main competitor ports.

On July 6, delivered Novorossiisk marine gasoil was at $585.5/mt, while Istanbul and Piraeus traded at discounts to Novorossiisk of $2/mt and 25/mt respectively.

The average premium at Novorossiisk over July was $14.50/mt for Istanbul and $33.30/mt for Piraeus, with highs of $44/mt and 60/mt on July 28, Platts data shows.

Novorossiisk sources said that slow demand is now pushing suppliers to lower prices, in order to attract higher fixing volumes in an otherwise well supplied market.

Novorossiisk market players have the flexibility to lower their MGO prices a bit more aggressively than their competitors because the ruble has strengthened against the dollar, sources said.

MED GASOIL SUPPLIES BOUNCE BACK

The Mediterranean 0.1% gasoil cargo market has seen differentials fall over the first half of July, pricing in response to resurgent supplies coming to the market following a period of extreme tightness in the market across May and June cause by strong tender buying interest into Algeria and Egypt.

With the US and Asian markets pricing lower than European distillate markets, the flow of distillate barrels subsequently directed to the Mediterranean market — combined with robust refining margins across product markets from depressed crude prices and strong product differentials — has seen gasoil supplies steadily build across the market, supported by a contango market structure encouraging stocking up on barrels in the region.

RUSSIAN DOMESTIC MARKET DIPS

Prices for Russian diesel and marine gasoil have meanwhile started coming off after a prolonged period of relative steadiness.

Diesel prices have been slowly edging lower since the last week of July, tracking weaker international benchmarks. Harvest works drawing to a close in the southern regions and a ban on Russian diesel railcar imports into Kazakhstan have also put pressure on domestic demand.

Traders expect the lower diesel prices to push down prices for marine gasoil which until now has been supported by good bunker demand both at sea ports and along the rivers.

But the spread between diesel and higher sulfur MGO has narrowed to around Rb2,000/mt, compared to a typical price gap Rb4,000/mt, and the high MGO prices are also making Russian ports less competitive for fueling, said sources.
Source: Platts