ULSD CIF NWE cargoes hit 12-week low on Baltic volume, seasonal weakness

CIF NWE diesel cargoes took a battering Wednesday as a record volumes from the main diesel export location of Primorsk pressured the market at a time when seasonal demand weakness typically prevails.

CIF NWE cargoes were assessed at just 25 cents above the January ICE low sulfur gasoil futures contract, the lowest since October 11, when they were assessed at a discount of $1.25/mt.

With the Primorsk program for January coming out at a hefty 1.462 million mt — the largest ever by around 60,000 mt, according to Platts records — the few buyers in the market are spoiled for choice in terms of cargoes on offer.

“The Primorsk program is heavy… so till January goes into last decade I would see weakness,” a source said, echoing the sentiment of others in the market who are waiting for the weakness to pass.

A weak differential at this point in the calendar is not out of the ordinary, with much of January experiencing a post holiday lull in demand. “Demand is lackluster, which is normal for this time of year,” a source said, adding that he also expects differentials to improve moving further into January.

While the prompt ICE low sulfur gasoil futures spread, a measure of the overall health of diesel and distillates in Europe, was still in a shallow contango of around $1/mt Thursday morning, the February/March structure was in a backwardation of around $1.50/mt, according to ICE data.

As such the market is generally bullish for February but there were a few notes of caution nevertheless, with some seeing the spread as not moving beyond $2.00/mt backwardation given current fundamentals.
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