Asia Traders Consider Diesel, Jet Fuel Trades to Europe

 

Traders in Asia are considering shipping diesel and jet fuel to Europe after a fire at that region's largest oil refinery disrupted supplies and boosted fuel margins, five traders and shipbrokers said on Tuesday.

 

Two shipbrokers said they had seen a rise in enquiries on booking long-range vessels to ship the fuels to Europe after Royal Dutch Shell shut most of the units at its 404,000 barrels per day Pernis refinery in Rotterdam following a fire in the power supply system on July 29. Although they added that no booking had been reported yet.

 

Shipping rates have already been affected, said one of the brokers, adding that rate for a 'Long-Range 2' vessel plying the Middle East to Europe route is being quoted around 12 percent higher than before the Pernis refinery outage.

 

"Loading dates (for the diesel and jet fuel cargoes) are for around mid-August, but I think it will be difficult to find oil on such prompt dates," he said, referring to trader enquiries. "But I suspect there may be some oil on water which will be diverted to Europe."

 

The Asian diesel margin jumped to a near two-year high on Monday, while the jet fuel margin climbed to a 1-1/2-year peak, tracking gains in the benchmark European prompt Low Sulphur Gasoil futures contract.

 

Still, traders are being cautious as the length of the shutdown remains unknown.

 

"The (diesel) timespread in Asia is backwardated, so the arbitrage doesn't really work," a Singapore-based trader said, referring to the price difference between August and September. A backwardated price structure indicates higher prices for prompt barrels compared with later months, which may mean losses for the traders as it typically takes over 20 to 30 days to ship to Europe.

 

"Right now, no one knows how big a problem (the outage) is, so it's best to get some clarity first," the trader added, declining to be identified.

 

The exchange of futures for swaps (EFS), a contract that traders typically deal in to hedge their Asia-Europe arbitrage cargoes, fell to minus $5.23 a tonne from minus 50 cents a tonne on Friday, a middle distillates broker said.

 

The arbitrage typically gets more profitable when the EFS trades at about minus $15 a tonne or below. Strong demand for diesel from India had driven the EFS into positive territory, which boosted interest in a reverse arbitrage route earlier this month.