European middle distillate and gasoline prices have dropped on Wednesday, 8 April, after the US and Iran agreed overnight to a two-week ceasefire that could see oil flow resume through the strait of Hormuz, but prices remain well above pre-war levels.
Front-month Ice April gasoil futures dropped by 18.3pc to $1,247.75/t at 10:30 BST (09:30 GMT). The contract serves as the underlying price against which European diesel and jet cargoes and barges trade.
Benchmark non-oxy gasoline barges were trading at $945.50/t at the same time, down by 9.9pc from the close on 7 April.
Front-month Ice gasoil futures and benchmark non-oxy gasoline barges prices were still higher than pre-war levels of $752.75/t and $690/t on 27 February, respectively.
The drop in European oil product prices has followed a sharp decline in front-month Ice Brent futures values, which fell 15.1pc since 7 April to trade at $94.04/bl at 10:30 BST.
European middle distillate values have fallen more steeply than gasoline on the ceasefire news, given that the continent is a net importer of the former and a net exporter of the latter. Diesel and jet arrivals from the Mideast Gulf respectively made up around a fifth and half of total EU, UK and Norwegian imports last year, according to Kpler.
The US and Iran said on 7 April that they would halt hostilities for a two-week period to finalise a peace deal. But their public statements differ on the status of navigation through the strait of Hormuz and uncertainty regarding vessel transit remains.
The effective closure of the strait of Hormuz since the US-Israel war against Iran began on 28 February has weighed on loadings of diesel and jet from the Mideast Gulf over March. Arrivals are expected to ease this month, reflecting lower March cargo bookings from the Mideast Gulf that would typically now be starting to reach European ports.
The drop in Ice gasoil futures is unlikely to translate into a rise in distillate bookings from the Mideast Gulf to European ports for now. The east-west gasoil paper spread remains at a discount, meaning that Europe would still struggle to compete for available volumes from the Mideast Gulf and India. The spread between Ice gasoil and Singapore gasoil swaps has narrowed somewhat on the session to a discount of around $150/t, according to one trader, down from around $210/t.
The US remains a more likely source for European diesel imports, one European diesel trader told Argus, given that the spread between US Gulf coast and northwest European diesel values is much narrower.
Europe's gasoline values have also risen since the war began, even though the region is a net exporter of the fuel. This is because of tighter east of Suez availability of crude and naphtha and condensates from the Mideast Gulf.
Traders have booked numerous cargoes to ship European gasoline and gasoline blending feedstock naphtha to destinations east of Suez since the war broke out, likely bidding up European gasoline values to secure fixtures for destinations in Asia-Pacific.
The ceasefire announcement has had little effect so far on the current structure in the European distillate and gasoline markets. The Ice gasoil futures structure remained in steep backwardation, with front-month at a $110.75/t premium to the second-month contract at 10:30 BST, compared with a $9.75/t spread on 27 February. The Eurobob oxy gasoline swap curve was showing front-month May swaps at a premium of $29.25/t over second-month June swaps Wednesday morning. The Eurobob oxy gasoline structure is typically in contango at this time of year as traders price in greater demand and blending costs from May onwards.
