<article><p class="lead">Ice gasoil futures have sunk into their shallowest backwardation since early January, with the December futures contract only $7.25/t above January 2023 at settlement on 10 November.</p><p>The spread is being squeezed by a requirement to deliver non-Russian diesel <a href="https://direct.argusmedia.com/newsandanalysis/article/2366819">from the coming January</a>. The remainder of the forward curve remains steeply backwardated, meaning contracts for earlier delivery pricing above those for later delivery.</p><p>Ice gasoil futures reflect the market for diesel in the Amsterdam-Rotterdam-Antwerp (ARA) region, where buyers can choose in fulfilment of their futures to take delivery of physical low-sulphur diesel into a tank or onto a barge.</p><p>From January Ice will require sellers to deliver exclusively non-Russian diesel in this situation, in anticipation of an EU ban on the purchase of Russian products from early February. The scheduled transition is narrowing the January futures' discount against the December contract because non-Russian product to deliver in January is naturally in shorter supply than the unrestricted pool usable in the prior month. </p><p>Even so, January futures remain cheaper than December because uncertainty intensifies as traders look further into the future. Uncertainty can lessen the effect of fundamentals on contract prices for later delivery relative to earlier — this is why tight prompt supply tends to create a backwardated market structure.</p><p>Looking beyond the effects of the switch to non-Russian diesel, Ice gasoil futures are still steeply backwardated, a sign that paper traders still expect tight prompt supply. The January contract settled $21.75/t above February on 10 November, not far off the average premium of around $30/t for the second month over the third since January 2022. They have been closer together than they are now at many times over recent months.</p><p>The front month premium over the second was $7.75/t for one day in August, the previous narrowest point since January. Since then the front month's premium over the second month has averaged around $40/t and has been well over $100/t on several occasions. For context, the front-month futures averaged a premium of less than $1/t over the second month in 2019.</p><p>December futures became the front month on 10 November.</p><p class="bylines">By Benedict George</p></article>
