The European diesel market has shifted into a contango structure for the first time in over a year, indicating that supply in the market is currently ample during a seasonally weak period for demand.
Front-month Ice January gasoil futures fell to a 25¢/t discount to the second-month February futures by the market close today, falling from a 50¢/t premium the day before. The European diesel market was last in contango — where prompt prices are lower than forward prices — in October 2024.
The backwardated structure in futures — where prompt prices are higher than forward prices — narrowed steadily from early December, after reaching a peak in mid-November.
Strong supply has weighed on the value of front-month futures this year, particularly from high imports expected from the US, according to one European analyst. Around 450,000t of diesel and other gasoil departed the US for Europe in the week to 2 January, and a further 525,000t has departed since then, according to Vortexa. Both volumes were the highest on the route since June last year. About 1.86mn t unloaded in the EU and UK from the Middle East in December, a seven-month high.
The well-supplied market has come at a seasonally low period for regional diesel demand — January and February are normally the weakest months for European road fuel demand.
January futures expire on 12 January, which may have also driven the front-month value down, according to a European trader. Traders closing their long positions in January futures before expiry would weigh on prices.
The second-month and third-month futures remain backwardated, with February futures settling at a $2.50/t premium to March. Current cold weather in Europe — forecast to get colder still — should provide some support for gasoil futures.
