European, US traders buy gasoline to exploit contango

London (Platts)--9Nov2005

Gasoline traders are storing European gasoline on both sides of the
Atlantic, as the current contango has boosted cash buying interest, traders
said Wednesday.

     When contango in the forward markets is sufficient, the cost of storage
is covered by the carry in the values, allowing traders to buy fuel for
storage. This buying interest has seen values supported in Europe and the US. 

     "It is short-term," one trader said. "But as long as there are tanks to
fill people will buy at these levels," one London-based trader said.

    European sulfur-free barge values firmed around $2/mt Wednesday, arresting
a significant downward trend which have seen European barge values
loose over $75/mt in one month.

     "There is support now," one trader said. "Support in the US and support
in Europe. I put my head up to show a bid in New York and there was definitely
interest."

     With contango on NYMEX unleaded futures at nearly 5 cts/gal between
December and January alone, traders said it has become attractive to put
European gasoline in tank in the US. "We are long gasoline in Europe anyway so
if you can't store in Europe then it does make complete sense to store in the
country you send to," one trader said. "In this case, the US."

     Strong NYMEX contango was also encouraging traders to replace secondary
stocks in the US, which had been run down in the aftermath of Hurricanes
Katrina, Rita and Wilma, traders said. "At the end of the day with this
structure you can now buy and tank without any real concerns," one traders
said. "It is certainly supporting Eurograde differentials in New York Harbor."

     European storage was also seen as attractive now that front-month
gasoline swaps had switched into contango. Traders said that finding available
storage for gasoline was proving difficult with tanks in Europe already
committed to storing distillates. 

     Strong contango for the large majority of the summer and into Autumn has
encouraged traders of middle distillates to store product. Consequently large
amounts of storage in Europe are already committed to storing gasoil, diesel
and jet fuel.

    "I have been looking for tanks and that isn't easy," one trader said.
"Realistically, I don't see much chance to store gasoline until [some middle
distillates] are moved out."

			--Simon Thorne, simon_thorne@platts.com
			--Gary Raynaldo, gary_raynaldo@platts.com

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