LONDON: European diesel premiums versus crude oil rose to a two-month high on Monday as import cargoes tapered off and traders held onto cargoes rather than offering them on the spot market.
Despite this, traders said the immediate buying demand had cooled as the front end of the market flipped into backwardation, meaning the current price is higher than the expected price in the coming months.
This has taken some of the upward pressure off premiums.
"There still is good contango, but not at the front," one trader said, in reference to the market structure when future prices are above the current levels.
"There is less prompt demand, as people can hold off putting into their tanks more without losing the contango structure," one trader said.
Some traders, who had locked in the contango structure from recent weeks, continued to funnel imports and production into storage tanks across the region, keeping some imports off the spot market.
Additionally, while European refineries are running hard due to strong margins, there are fewer cargoes of diesel coming into Europe from the United States towards the end of January and early February, mostly due to demand from Latin America.
Issues at refineries in Venezuela and Brazil, planned maintenance in Ecuador and robust consumption in Argentina have all siphoned cargoes from the United States and even the Middle East that would otherwise come to Europe.
"When Latin America gets its refinery act together, it will look weaker," one trader said.
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