Mideast, WC India Gasoil Arbitrages Swing to Asia Amid Volatile Freight: Sources
The arbitrages for long range 2-size gasoil volumes from the Middle East and the West Coast of India have swung eastwards to Asia after many shipowners chose not to provide voyages through the Strait of Hormuz, although the situation remains volatile, market sources said.
This is despite gasoil prices in Northwest Europe pulling ahead of Asia’s prices.
The price spread between Asia and the Northwest Europe, represented by the East-West Exchange of Futures for Swaps values, has been steadily widening since the Iran conflict started on Feb. 28, with the March and April values opening on Tuesday morning Asia time at discounts of $87.59 per metric ton and $102.78/mt, respectively, compared to Asia’s closing values the previous day at discounts of $77.09/mt and $93.94/mt, respectively.
On the other hand, the freight market has been very volatile, especially for rates that involve passing through the Strait of Hormuz, adding to the confusion surrounding the feasibility of sales to Europe.
Iran declared the Strait closed on Monday, vowing to attack any vessels attempting to pass through the waterway, state media reported.
Some shipowners and freight providers, such as CMA CGM, Maersk and Hapag-Lloyd, have suspended transits through the critical chokepoint.
It is currently difficult to get an accurate reading of the freight market due to the lack of new fixtures, a market source said.
According to another source, the latest freight cost estimates for transits around South Africa’s Cape Town are so high that the large E-W EFS discounts are not deep enough for LR2-size gasoil cargoes from the Middle East and the West Coast of India to be sold to Northwest Europe.
Despite these issues, Europe is fundamentally short of middle distillates compared to Asia, and will still need to source volumes from somewhere. Eventually, freight costs, paper and physical prices, and inter-regional price spreads will adjust in a way that will see physical volumes flowing to Europe, the source explained.
—Reporting by Kite Chong, kchong@opisnet.com; Editing by Mei-Hwen Wong, mwong@opisnet.com