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Traders eye reverse diesel arb to US as cold bites: sources

London (Platts)--29 Dec 2017 703 am EST/1203 GMT


The bedding in of winter in the US coupled with European weakness has diesel traders eyeing up the reverse diesel arbitrage, according to sources.

Ordinarily the US exports diesel to European markets, but recent strength in the NYMEX heating oil contract, one leg of the HO-GO spread used to measure the relative strength of US and European diesel, has flipped the customary dynamics.

The front-month HO-GO spread settled Thursday at 13.77 cents/gal, edging off the month high of 14.02 cents/gal reached Wednesday, according to ICE data.

The spread has been driven by cold weather in the US increasing demand for heating oil.

"Looks workable to me," a source said on the arbitrage to the US. Diesel could also find homes in Latin America, he said.

Others said the arbitrage was teetering on the edge of being open, facilitated by a weak CIF NWE market.

However, solid fixtures for vessels have been few and far between so far.

The HO-GO is the principal reason behind the opening arbitrage despite US Gulf Coast differentials are near their lowest levels for the year.

US Gulf Coast material is effectively barred from entry into the US Atlantic Coast low sulfur heating oil market by virtue of limited pipeline space and the Jones Act making seaborne US-to-US cargoes prohibitively expensive.

--George Shaw, george.shaw@spglobal.com

--Edited by Jonathan Fox, jonathan.fox@spglobal.com




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