Bearish outlook difficult to ignore as diesel markets slip into contango and margins likely to face further pressure

16 October 2024 Time to read:  minutes

Singapore and US diesel are now in contango, with ICE Gasoil following suit, as backwardation has fully disappeared. European pricing has weakened in particular, pushing E/W levels to their narrowest levels since August, exacerbated by the easing of geopolitical tensions in Iran, and a surge in imports expected this month further complicates the picture. European diesel cracks have returned to essentially their pre-sanctions average levels – if not still a little higher – but the risk certainly seems to weigh to the downside from here.

At the same time, Sing cracks are at their lowest seasonal levels in recent history. Despite this, the E/W spread is narrowing, signalling Europe’s growing urgency to avoid excess barrels incoming, especially from regions like WCI/AG. This comes as local refining runs are set to increase seasonally in Europe. There remain hopes that European distillate inventories are not particularly high and the currently shut inbound arbs will allow the market to strengthen later in the quarter, but with over 20 VLCCs still on gasoil duty and plenty of oil on water still pointing to Europe (the Med has noticeably weakened as refinery capacity has returned), even slightly lower stocks levels are not going to save this market through Q4.

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