Brazil products: Arbitrage lock sidelines buyers

Diesel buyers in Brazil eschewed negotiations last week as a differential increase in the US physical market in relation to Nymex futures kept a lock on arbitrage opportunities.

There were no reported purchases of full cargoes of S10 diesel on a Brazil dap basis this week. Market discussions for deliveries to ports in the south and southeast regions were close to Nymex July +2.5¢/USG, compared to July Nymex -1¢/USG the previous week. Talks for cargo delivery for the north and northeast ports were at July Nymex -0.5¢/USG.

The closed arbitrage stopped activity in the diesel domestic spot market of S10 diesel this week, with offers at a premium to Petrobras prices, prompting most buyers to purchase Petrobras' product. Local market participants largely expected Brazil's state-controlled Petrobras to increase refinery gate prices by 8pc soon. The firm has started restricting production of S10 and S500 diesel at the Araucaria refinery. At the Paulinia refinery, Petrobras restricted sales of pre-contracted volumes on 15 May, one business day prior to announcement of the price hike.

At the port of Santos, batches of ex-port land terminal S10 diesel were offered at premiums ranging between R30/m³ and R180/m³ in relation to ex-refinery Paulinia prices. The midpoint of R105/m³ represents an increase of R40/m³.

In Paranaguá, sales offers for S10 diesel were reported at premiums between R100/m³ and R160/m³ in relation to the values in force at the Araucaria refinery. The midpoint of R130/m³ represents an increase of R35/m³ in relation to the previous week.

In the gasoline market, the higher discounts stemming from wider differentials for components failed to stimulate negotiations, with many buyers already preparing for the change of fuel specifications on 3 August.

Discounts for imported cargoes of unblended gasoline were larger, reflecting lower differentials in the US Gulf region for Brazilian gasoline components. Buyers' interest remained anemic in the face of a gap between international market prices and the wholesale prices being offered by Petrobras.

There were no reported purchases of full cargoes of gasoline on a Brazil dap basis this week. The market consensus for delivery of full cargoes of imported gasoline to the ports in the south and southeast regions emerged at July Nymex -12¢/USG, corresponding to a widening of 2¢/USG compared to the previous period. In the north and northeast ports, market participants reported offers between July Nymex -13¢/USG and -14¢/USG on the same basis. The average of -13.5¢/ USG represents a wider discount by 1.5¢/USG compared with the previous week.