Signing of term supply contracts for ultra-low sulfur diesel in Northern Europe for next year have been delayed because of disagreement over contract conditions, trading sources said.
Usually, such agreements are in place by October for the year ahead, the sources added.
Disagreement has focused on doping--a widely used method for correcting off-spec diesel--along with other contract terms and conditions, one trader said Tuesday.
"This year is very late," a second trader said. "There is a marked difference between the terms some of the buyers want and some of the sellers are prepared to sell."
The majority of diesel traded in Europe, like anywhere in the world, changes hands through term contracts, which ordinarily last a year.
Negotiations for these contracts begins shortly after the summer break, with the contracts generally concluded in October.
However, there have been disagreements this year among sellers over clauses that some see as being weighted towards buyers. This issue began to be a problem in 2010, sources said.
"There is a practical reality to the way oil trades and there is the letter of the contract," one holder of a 2010 term contract said. "The problem we had is terms we signed for this year meant the buyer could reject barrels that were ultimately on-spec and fully tradable in the market."
European ULSD term contracts are typically traded on a CIF basis and under those terms the quality of the fuel is typically established in the shore tanks at the original load port. However, diesel can sometimes fall off-specification or get contaminated in transit and as a result may not be on-spec at the time of loading.
This can be rectified through the use of chemical additives--through the process of doping--with no detriment to the usability of the fuel, traders, brokers and oil companies say.
"Doping is a commonplace market practice and it has been for a long time now," one supplier of Russia-origin diesel said.
"We have been rejected by some buyers this year though as technically the oil wasn't fully on-spec at load, even though we had doped the oil and retested it showing it fully on-spec," the supplier said.
"I want to supply, but I want to make money too. The buyers need to accept what the commercial and trading reality is," one trader said. "Doping is an established market practice and they aren't harmed by a seller doing it."
Another trader said Tuesday that a potential sticking point is where exactly doping of off-spec oil takes place.
"They should dope at load port. Some people have been saying no I will dope at sea, which is wrong, because then the risk is mine," the trader said.
"There have been a lot of problems with the doping [issue], with people pushing BP General Terms and Conditions and also Platts rules to apply [to the term contracts]," he said.
Going forward, it is as yet unclear how these issues will be resolved.
Usually, such agreements are in place by October for the year ahead, the sources added.
Disagreement has focused on doping--a widely used method for correcting off-spec diesel--along with other contract terms and conditions, one trader said Tuesday.
"This year is very late," a second trader said. "There is a marked difference between the terms some of the buyers want and some of the sellers are prepared to sell."
The majority of diesel traded in Europe, like anywhere in the world, changes hands through term contracts, which ordinarily last a year.
Negotiations for these contracts begins shortly after the summer break, with the contracts generally concluded in October.
However, there have been disagreements this year among sellers over clauses that some see as being weighted towards buyers. This issue began to be a problem in 2010, sources said.
"There is a practical reality to the way oil trades and there is the letter of the contract," one holder of a 2010 term contract said. "The problem we had is terms we signed for this year meant the buyer could reject barrels that were ultimately on-spec and fully tradable in the market."
European ULSD term contracts are typically traded on a CIF basis and under those terms the quality of the fuel is typically established in the shore tanks at the original load port. However, diesel can sometimes fall off-specification or get contaminated in transit and as a result may not be on-spec at the time of loading.
This can be rectified through the use of chemical additives--through the process of doping--with no detriment to the usability of the fuel, traders, brokers and oil companies say.
"Doping is a commonplace market practice and it has been for a long time now," one supplier of Russia-origin diesel said.
"We have been rejected by some buyers this year though as technically the oil wasn't fully on-spec at load, even though we had doped the oil and retested it showing it fully on-spec," the supplier said.
"I want to supply, but I want to make money too. The buyers need to accept what the commercial and trading reality is," one trader said. "Doping is an established market practice and they aren't harmed by a seller doing it."
Another trader said Tuesday that a potential sticking point is where exactly doping of off-spec oil takes place.
"They should dope at load port. Some people have been saying no I will dope at sea, which is wrong, because then the risk is mine," the trader said.
"There have been a lot of problems with the doping [issue], with people pushing BP General Terms and Conditions and also Platts rules to apply [to the term contracts]," he said.
Going forward, it is as yet unclear how these issues will be resolved.
