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Markets

Diesel diffs firm, naphtha boosted

LONDON : Diesel barge differential swaps were stronger on Monday compared with the same time a week ago as anxiety eased
Published July 25, 2011

oilsLONDON: Diesel barge differential swaps were stronger on Monday compared with the same time a week ago as anxiety eased over the euro zone debt crisis and some players moved to cover their short positions.

A trader said a realisation that the euro zone debt crisis would not come to a head in the immediate future, combined with heavy buying from Mabanaft, possible to cover short positions, and had supported prices.

On the lights end, naphtha swaps were boosted by demand for use in gasoline blending. The backwardation narrowed in gasoline swaps, although the outright swap price remained elevated.

"The European naphtha crack was marginally stronger during the week but the backwardation in RBOB gasoline is coming off," noted Olivier Jakob, an oil analyst at Petromatrix.

Diesel barge differential swaps for August traded at $31.11 a tonne over ICE gasoil futures compared with $28.51 a tonne last week.

A diesel trader said that reassurance on the situation in Europe was supporting prices. "All diesel gained last week when traders finally realised the end of Europe was not nigh."

Diesel cargo swap differentials for August were unchanged for a second week, however, trading at a premium of $34 a tonne cif NWE to ICE gasoil futures.

The contango between the August and September barge differential swap was $1.98 and $2.09 between September and October.

Contangos were weaker than at the same period in previous years.

The trader said poor margins in northwest Europe, a marginal or closed US arbitrage and a big pull of gasoil from Amsterdam-Rotterdam-Antwerp to West Africa and South America had contributed to this.

The August ICE gasoil contract was at around $977.00 a tonne by 1012 GMT, down some $5.75.

The August barge differential swap was stronger at $86.78 a tonne, up from $80.59 a tonne over ICE gasoil futures last Monday.

The forward curve is in contango for the rest of the year, reaching a premium to ICE gasoil futures of $95.78 by January 2012 and only reverts to backwardation in February 2013.

The premium on fuel oil with 1 percent sulphur content against fuel oil with 3.5 percent sulphur content dubbed hi-lo in the swaps market was a little weaker at around $41 a tonne. This was down from around $44 a tonne last Monday.

August low sulphur fuel oil barge swaps traded at $688.58 a tonne, with September LSFO barge swaps at $679.40, a backwardation of $9.18 a tonne.

The forward curve was in backwardation to December 2011, when it drops to $670.30.

August gasoline barge swaps were at $1,055.81 a tonne fob ARA, up from $1,046.62 a tonne last Monday. September swaps were at $1,045.50 and October was trading at $1,015.80.

The US RBOB crack spread was down to $29.83 a barrel from around $34 a barrel last Monday.

The gasoline curve remained in backwardation, with the August-September barge swap spread at around $10 a tonne, narrowing slightly from around $11.50 a tonne on the previous Monday.

A gasoline broker attributed the persistent backwardation to the high price at the front end. "I am not sure the market knows where the direction should be heading," he said.

The International Energy Agency's co-ordinated release of crude oil and oil products from strategic reserves has not had a sustained impact on the European market.

"I think the IEA released more in the US and not so much in Europe where the product was needed, so it is not really going to have an effect," the broker said.

August crack spreads were at about $7.74 a barrel, up from$7.36 last Monday. The September crack was trading at about $6.58 a barrel, up from $6.31 a barrel the previous week.

The August naphtha cargo swap raised again, to $997.40 a tonne cif NWE, up from $983.66 a tonne last Monday.

Demand for naphtha for use in gasoline blending has been pushing up the price, leading to supplies coming from the Middle East to Europe last week a rare reverse arbitrage.

"At the moment there is still a healthy demand for summer gasoline, but I don't think it will last for long," said one naphtha analyst at a large European trading house.

For September, the naphtha cargo swap was at $993.95 a tonne, compared with $982.14 a tonne last week. For October it was $994.99 a tonne, up from last Monday's $985.05 a tonne.

The front-month backwardation has widened to $3.45 a tonne, from $1.52 a tonne last week.

Crack spreads improved a little, with the August refining margin at minus $5.81 a barrel, firming from minus $6.60 a barrel last week. The September crack was at minus $6.13, in from last week's minus $6.55 a barrel.

The propane-naphtha spread remained wide at minus $98.73 at tonne for August, but has narrowed from last week's minus $112 a tonne, a trader said.

Copyright Reuters, 2011

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