Gasoil Spreads --March/April & April/May

The front month Gasoil spread of March versus April 2 days ago re-tested the high of $15.00 seen almost 6 weeks ago. The narrative seen last week was one of a tight market. But, in the interim, the narrative may have loosened for several reasons.

The bullish narrative that propelled the spreads wider may have been that Europe’s diesel supplies have been tightened by refinery outages — both planned and unplanned — in recent weeks. January also saw a sharp drop-off in shipments into the European Union and UK, according to Vortexa Ltd. data compiled by Bloomberg. Supply limitations in the U.S. are seen reducing the usual shipment of cargoes from the U.S. to Europe, as per Bloomberg reporting. "Cargoes diverting to the US, reverse arbitrage movements from Amsterdam-Rotterdam-Antwerp to PADD 1 are indicative of an undoubtedly tight US market.", as per Kpler analysis. The recent cold weather was also supportive for Europe’s Gasoil market.

With regard to ICE Gasoil positioning, ING offers the following : " Recent positioning data shows speculators bought 14,222 lots of ICE Gasoil over the last reporting week (ended Tuesday Feb. 18)? leaving them with a net long of 20,872 lots as of Tuesday Feb. 18. Stronger natural gas prices and colder weather through parts of the northern hemisphere may have provided support for middle distillates demand.

While gasoil stocks in the ARA region fell by 36kt last week, according to Insights Global, they remain at a very comfortable level of 2.54mt." (Platts) According to recent reports, both India and Saudi Arabia are expected to increase their diesel shipments to Europe, with India particularly positioned to become the top supplier of refined fuel to the continent, surpassing Saudi Arabia, due to its ability to process large volumes of discounted Russian crude oil, which is now largely unavailable to Europe due to sanctions.

The bullish narrative may have eased for several reasons: 1) the possibility of peace in Ukraine may lead some to suspect a possible increase in supplies from Russia (2) the steep fall in the TTF gas price has likely eased some of the suspected gas to oil switching that may have been at work due to the TTF rising to a price recently that was the highest in over 2 years. (3) an increase in imports from India and Saudi Arabia. They are seen doubling in February from January's level. (Market news)? (4) temperatures in NW Europe are set to rise to above normal over the next 2 weeks.

Technically, the front month ( March/April) spread was overbought 2 days ago on the high basis the chart momentum, which is now pointing lower. Resistance above the $15.00 double top area lies at a previous high from December 2023 at $19.50. Support comes in at $10.00 and then at the recent low of one month ago at $5.75, but this value seems unlikely to be tested.

The April/May Gasoil spread did not test the former high in the recent run-up. The high one week ago was $11.00. The prior high seen mid-January was $12.50. Support lies at $7.00 and then at $5.50. Momentum is neutral, but looks poised to turn negative.

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