Marine gasoil prices spike as Russia’s middle distillate squeeze spills onto European waters
Marine gasoil prices in the Amsterdam-Rotterdam-Antwerp hub are spiking and there appears little let up in the supply squeeze of the fuel crucial for ships staying compliant with sulfur standards in the European waters.
Ships trading in designated emission control areas across Europe must use fuel with 0.1% sulfur, namely MGO, rather than other higher sulfur bunker fuels. MGO comes from the middle distillates family but often lags in terms of profitability. European refiners are also prioritizing output of diesel and jet ahead of gasoil that has further eaten into MGO supply.
Gasoil deliveries from Russia to the European continent have declined sharply as increasing numbers of companies avoid handling Russian product following its invasion of Ukraine Feb. 24 and as politicians and market watchers continue to talk of a potential ban on Russian oil into the European Union. The UK has already banned Russian oil imports.
Russian gasoil exports to the region were just 250,000 barrels in the week started April 18, compared with a weekly moving average of 510,000 barrels and 1.97 million barrels in the week started March 7, according to data from shipping tracking software company Kpler. Russian gasoil deliveries to Europe were 2.09 million barrels in the week started April 19, 2021.
The outlook remains bullish with prices at Rotterdam jumping almost 130% above 2021 levels. Shipping sources said they are pessimistic about price relief in the near future.
“We’ve seen ports in Amsterdam run totally dry on MGO in recent weeks, but shipowners have no choice but to wait in queues at loading docks every day for material,” said a shipping source.
Availability is a problem, said Anton Shamray, senior analyst at tanker pool and commercial management company Navig8, highlighting at least a 10-day lead time for buying MGO at ARA ports in recent weeks. “Suppliers have struggled to secure material as far as three weeks out,” Shamray said.
Import arbitrage routes for diesel and gasoil to Europe from the Middle East and the Persian Gulf have closed in recent weeks, tightening the supply of potential blending components too.
“I don’t see the situation changing until the war ends,” another shipping source said.
The advice from the sell-side is to consider a range of refueling options. “Buyers may benefit from additional refueling planning around the ARA hub in particular, while potential premiums may also be expected until markets balance out,” Svend Stenberg Molholt, group COO at bunker supplier Monjasa said.
Any rebalancing in flows is not insurmountable, according to Molholt. “We have seen important changes to production and product flows in the past and we believe that also on this occasion, supply and demand will find its balance across markets,” he said.
ARA stocks of diesel and gasoil dipped 1.6% on the week to an 11-year low of 1.439 million mt in the week to April 20, Insights Global data showed April 21. TotalEnergies’ European refining margin indicator surged to $46.3/mt in the first quarter, from $5.3/mt a year ago, as distillate cracks ballooned on the back of the Russia-Ukraine war, the company said April 19.
FOB ARA barge jet fuel and gasoil cracks hit all-time highs April 26, with diesel barges also at a record, barring a spike to $59.20/b March 3. Diesel barge cracks were assessed at $52.23/b April 26, and FOB Rotterdam jet cracks having overtaken those of diesel were at $57.50/b, S&P Global data showed. These products are slightly ahead of 0.1%S gasoil — a product very similar in specification to MGO and sometimes part of the blending pool. S&P Global assessed the 0.1%S gasoil crack at $47.56/b April 26.
“The key outstanding questions are what happens to Russian crude and product exports and global demand recovery going forward,” Shamray said.