Mercuria Energy, one of the latest charterers to have canceled a vessel on subjects, the King Darwin, was originally meant to move 60,000 mt of gasoil from South Korea to the UK at $1.625 million for October 22 loading.
BP, which had booked Summit Asia to carry 60,000 mt of gasoil from South Korea to the UK at $1.6 million, has also dropped its plan.
Weaker arbitrage economics on the back of firmer exchange of futures for swaps, or EFS, last week and limited supply from North Asia were partly blamed for the cancellation of vessels on subjects.
At the close of trade in Asia Friday, the EFS -- price differential between Singapore gasoil swaps and London ICE gasoil futures -- strengthened by $11.28/mt week on week to be assessed at minus $18.27/mt.
"I guess if they locked in their EFS positions at lower levels, the rise in that would allow them to take a nice paper profit on those positions," said a Singapore-based trader.
"However, they still have to place the material regionally, which will impact that," he said, adding that one possible outlet for ultra low sulfur diesel could be Australia, where there has been incremental demand due to an increase in mining activities.
In addition to the stronger EFS, limited supply in Asia closed the arbitrage.
"When the arbitrage opened, many were rushing to place their vessels on voyage to the West and this was putting pressure on the supply," said a Singapore-based trader.
At least six refineries in Japan were undergoing turnarounds, limiting the supply of gasoil in the region, sources said. "But still, there are cargo holders, such as term holders. Refiners are sold out, but some traders might still have gasoil," one of the sources said.
In South Korea, "barrels have sold out even for November," said a trading source, but added: "The Far East is still long on high sulfur gasoil and the medium sulfur grade."
The tight supply is reflected by steeper backwardation Tuesday in Singapore's ULSD market.
At the close of trading in Asia Tuesday, the premium for 10 ppm sulfur gasoil was assessed at Mean of Platts Singapore 0.5% sulfur gasoil assessment plus $2.20/barrel, up 5 cents/b on the day. BP's bid of MOPS 0.5% sulfur gasoil plus $2.30/b for 250,000 barrels of 10 ppm for loading from Singapore over October 27-31 was still standing on close while Vitol's offer at MOPS 0.5% sulfur gasoil plus $2.20/b for 150,000 barrels of 10 ppm sulfur gasoil for loading from Singapore over October 31-Nov 4, indicated that the low sulfur market has slipped into a steeper backwardation.
China Chemical Weekly: http://news.chemnet.com/en/detail-1411716.html
