Pricing differentials for gasoil in the CIF Mediterranean cargo market surged amid renewed buying interest from Algeria for spot deliveries across September, narrowing the spread to the equivalent ultra low sulfur diesel (ULSD) benchmark.

CIF Mediterranean 0.1% sulfur gasoil cargo differentials rose sharply to a $8.75/mt discount to low sulfur gasoil futures Friday, up $3.25/mt on the day and a two-month high.

This spike also brought the spread to 10 ppm diesel in the Mediterranean to the narrowest level in four months at $9.50/mt. The last time the spread fell below this level was May 5, when it was assessed at $8.75/mt.

Algeria’s Sonatrach issued a second tender for September, seeking two cargoes of 0.1% gasoil for prompt delivery. This followed a tender issued at the end of August for one cargo.

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While Sonatrach typically tenders for a total of three cargoes a month, the company is not known to issue requests for delivery on such a prompt basis.

Furthermore, heading into winter, demand from Europe for heating fuel grades of 0.1% gasoil is also expected to pick up and provide some support to differentials.

“Maybe we’ll see some more demand heading into winter. 0.1% gasoil may be affected a little for heating fuel purposes,” a trader in the Mediterranean said.

France, Greece and Slovenia are among the countries known to import 0.1% sulfur gasoil for use as heating fuel.

In contrast, fundamentals in the Mediterranean diesel market has remained little changed in the last week, with the differential to the front-month ICE low sulfur gasoil futures contract entering into negative territory for the first time in around a year and a half last week.

With refineries such as Hellenic’s Elefsis back from maintenance, a generally weak consumer demand and relatively high margins for producers, there is little to sustain a high differential.

In addition, key demand centers such as Turkey have been receiving a steady flow of Long-Range cargoes from the East of Suez market, which is also adding pressure to the market overall.

–Ahila Karan, ahila.karan@spglobal.com
–George Shaw, george.shaw@spglobal.com
–Edited by James Leech, james.leech@spglobal.com

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