Mediterranean gas oil prices have surged this month to their highest level in a year as strong demand in the eastern Mediterranean competed for lower export volumes from the Black Sea, traders said yesterday.
The price rise contrasts with Northern Europe, where the mild winter has left storage tanks brimming with heating oil and kept values at about half year-earlier levels.
While that may have widened the gap between Med and North European prices enough to make arbitrage shipments feasible, freight rates have surged after dozens of ships were booked to take huge volumes of gasoline to the United States in recent weeks.
“There is a limit to the upside (in Med price levels), which is storage barrels in Northwest Europe,” one trader said. “At the moment freight is expensive; if it comes off then we will see more barrels from Northwest Europe.”
Rates for clean 37,000-ton vessels have jumped by more than three-quarters since the beginning of February on the back of higher European gasoline shipments to the US, where stocks are now below year-earlier levels.
Even as the surge in Med gas oil prices widened their premium to North European values to around $22 a ton this week, up from $4 a ton in mid-February, traders said vessel availability was also hindering possible arbitrage shipments.
“In theory it should work to the Med, but you need the right ship at the right time,” a trader said.
While sulfur content restrictions in gas oil limit its usage in Northern Europe to winter fuel heating, less strict sulfur rules in the eastern Med region mean the product can also be used there as a transport fuel.
At the same time, Greece has bought several cargoes for March delivery, which it plans to store until next winter, traders said.
On the supply front, exports from the Russian Black Sea port of Tuapse have been sliding in recent months as the terminal switches to exporting mainly fuel oil.
By contrast, Lukoil’s Baltic Sea terminal of Vysotsk saw oil product exports rise by a third last year.
Russia’s top oil producer has said it would turn the port into its key products export outlet at the expense of other destinations such as the Black Sea.
(Reuters, 07/03/2007)