European diesel refining margins and the Ice gasoil futures structure jumped today, 21 January, supported by EU sanctions on products refined from Russian crude coming into effect and by a forecast cold snap in the US.
Front-month Ice February gasoil futures have risen by $33.75/t since 19 January, settling at $685.25/t at the market close today.
The rise in futures helped the premium of diesel cargoes on a fob ARA basis against front-month Ice Brent crude futures to rise by $3.76/bl over the same period to $26.98/bl today, a six-week high.
The premium of Ice February gasoil futures against the March futures has risen by $5.50/t since 19 January to $9.75/t. Prior to this steepening, the backwardation in futures was relatively narrow, suggesting that market participants previously did not expect major disruption to Europe's gasoil supply caused by the sanctions.
But it appears that the diversion of some vessels holding diesel from Reliance's 1.4mn b/d Jamnagar refinery away from northwest Europe in recent days may have reduced participants' expectations of supply in the coming weeks, supporting prices. Two vessels holding about 240,000t of Reliance diesel have changed their signalled destinations to west Africa from Rotterdam in the past week — the Aesop and the Isabella — according to Kpler.
US demand for heating oil has also risen in anticipation of a forecast cold snap, causing European prices to follow US prices upwards, according to market participants. Front-month Nymex diesel futures settled at 233.85¢/USG on 20 January, higher on the week by 10.01¢/USG. Those futures had risen by another 9.05¢/USG to 242.9¢/USG in intraday trading by 17:10 GMT today.
But some market participants expressed surprise at today's rise in refining margins, suggesting that the market should have already priced in any impact to supply from the sanctions.
