The prospect of prolonged disruption in westbound shipments of east of Suez gasoil cargoes will support prices in Europe and weigh on prices in east of Suez, as attempts to free the Ever Given is expected to extend into weeks.
The east-west spread — the difference between front-month Singapore gasoil swaps and the front-month Ice gasoil contract — has been falling fast following market discussions warning that the Suez Canal blockage could take days to weeks to resolve. The April east-west spread was discussed between -$6.50/t and -$8/t today, said market participants, a sharp fall from -$2.68/t assessed yesterday.
At least one diesel tanker was observed departing on the route round the Cape of Good Hope instead of waiting for the Suez passage to clear. The UST Luga loaded with about 95,000t of gasoil from Jubail on 18 March, was booked by Total's shipping arm CSSSA to head towards northwest Europe and US Atlantic coast, data from Vortexa and shipping fixtures show. The tanker is in the Arabian sea and pointing towards Africa instead of the Red Sea, which signals that it is beginning detours around Africa even if this means taking the longer route around the Cape.
Delayed Asian-origin gasoil cargo arrivals to Europe in the near future will strengthen the European market relatively to the east of Suez market, pressuring the east-west spread into a deeper discount. Some 1.5mn-2mn t of gasoil typically flows through the Suez Canal from the east to west of Suez each month, said market participants.
The potential prolonged blockage at the Suez canal has so far not caused much delay in cargo loading in Asia-Pacific, said traders. The region has remained well supplied as major exporters offer more cargoes to the market. A weakening east-west spread could prompt suppliers to ship more gasoil barrels out of the region.
Market participants cautioned that low demand for gasoil and ample arrivals from Russia could reduce the impact on European diesel supply for now, although a prolonged disruption could have a larger effect. Clean freight tanker rates have also risen in recent sessions while Baltic and cross-UKC freight costs have also firmed although costs were already rising before the Suez issue emerged. Flows may be reduced between both regions as a result.
The impact of the Suez blockage is having a significant impact on freight costs, which is likely to have a knock-on effect on delivered diesel prices, and weaken arbitrage opportunities between both regions, further adding pressure to the east of Suez market.
