Forward-month diesel east-west price spreads rallied to more than three-year highs, LSEG data showed on Tuesday, as traders remained concerned about supply tightness stemming from conflict in the Middle East though trades on the east-west route were not yet seen.
The April east-west price spread, typically measured by the exchange of futures for swaps (EFS), was valued at a discount of almost $135 per tonne, the data added, while March values were at discounts of $100 per tonne.
Forward-month values were the strongest since October 2022, and prompt-month spreads were the highest since July this year. The EFS is the difference between Singapore diesel swaps, on a free on board basis, and ICE gasoil futures.
Forward-month values were the highest since October 2022, while prompt month spreads were highest since July this year. Persistent worries about tighter supply fundamentals going into the next month continued to push markets higher, regional trade sources say, as fuel deliveries via the Strait of Hormuz remain unlikely.
More than 400,000 barrels per day of diesel passed through the Strait of Hormuz last year, with one-third of the total number heading to the Europe region.
Despite the much wider spreads, actual arbitrage cargo fixtures on the east-west trade route were yet to be seen this week, two shipping sources said, highlighting that there is still no outright offers from shippers on this trade route.
"The trajectory for both diesel and jet though now hinges on the scale and duration of escalation," said Sparta Commodities James Noel Beswick in a client note dated March 2.
(Reporting by Trixie Yap, Editing by Louise Heavens)