May Pricing Recap - European Gasoil

The European gasoil complex unwound April's Hormuz-driven scarcity premium, with ULSD 10ppm NWE CIF averaging $1,183.82/mt (-9.1% MoM, +90.8% YoY), Brent rolling -10.7% MoM to $107.54/bbl avg and Atlantic Basin imports rebounding to ~1.5 mb/d in the first 18 days of May (+16% YoY) as US PADD 1+3 exports hit 1.8 mb/d, +44% over the strongest 2025 month. The month traded in two phases: a -8% complex-wide crash on 6 May as the April war premium priced out, followed by a late-month cliff (W5 -11% to -13% WoW across grades) with every benchmark closing at the monthly low on 29 May.

MED outperformance reversed completely (MED ULSD diff vs LSGO collapsed +$71 to +$17), the East-West arb closed (Singapore Gasoil at parity with NWE vs +$24/bbl premium in April), and the LSGO curve bear-steepened with M1 -20.5% vs M12 flat as the back-end priced IEA's assumed 3Q26 Hormuz reopening. Jet underperformed with the regrade vs ULSD at +$13.87/bbl avg (vs +$22.78 in April), closing at +$8.83/bbl on 29 May as aviation demand destruction intensified. The May story is not Hormuz reopening (Strait still mostly closed, Project Freedom yet to deliver) but Atlantic Basin supply replacing the East-of-Suez gap, with ARA gasoil stocks still at 2.5-year lows despite the import surge. The unwind has further to run if Hormuz actually reopens; if peace talks collapse, the front re-prices higher and the bear steepening reverses.

Market Activity

• Aggregate Bid: Offer flipped from 1.51 (April) to 0.96 (1-29 May), but the reversal was concentrated in physical windows: ULSD Barges 1.25 to 0.79, ULSD NWE Cargoes 2.59 to 0.66, ULSD MED Cargoes 3.65 to 1.16; derivative ULSD NWE diffs held mildly buy-biased at 1.17 (only down from 1.25), the paper market did not follow the physical reversal.
• TOTSA’s surge to top seller spot at 103 trades (+49% MoM) was almost entirely derivative selling, not physical: cargo-diff sells more than doubled (36 to 84 trades) while physical cargo sells DECREASED 42% (33 to 19); the producer-major was hedging cargo-diff exposure on paper, not dumping physical cargoes into the window.
  
  • Shell Rotterdam’s collapse from #1 physical seller (92 trades April) to 38 in May (-59%) is the cleanest producer-major retreat from the physical window; EXTAP (ExxonMobil Asia Pacific) at #4 physical seller with 14 trades (up from 9 in April, +56%) is direct counterparty evidence of the Atlantic Basin rebalancing story, Asian-arm cargoes routed into the European physical venue.
• Buyer-side rotation: Vitol stayed top physical buyer but halved volume (88 to 44 trades); Trafigura doubled derivative buying (21 to 43, became top derivative buyer); Glencore UK flipped from #4 physical seller in April (16 trades) to #2 physical buyer in May (30 trades), suggesting inventory replenishment now flat prices have eased. Gasoil 0.1% and 50ppm trade volumes too thin (24 and 37 May transactions) for standalone counterparty reads.

Price Action

• ULSD 10ppm NWE CIF (GX0000093) Prompt opened $1,331.25/mt (1-May), closed $1,028.25/mt (29-May, the monthly low); avg $1,183.82/mt vs April $1,302.54/mt (-9.1% MoM) and May 2025 $620.35/mt (+90.8% YoY); range $303.00/mt.
• Two-phase month: 6 May crash (-$108.50/mt, -8.3% single-day for ULSD CIF; LSGO M1 -$103.50 same day) as the April Hormuz premium repriced out, followed by a late-month cliff extending through W5 (26-29 May) with every grade falling -11% to -13% WoW into the final session.
  
  • Every benchmark closed at the monthly low on 29 May (ULSD 10ppm NWE CIF $1,028.25/mt, the lowest since Aug 2025); the largest single-day rise (+$58.75/mt on 15 May) was a brief mid-month consolidation rather than a turning point; the trend was unidirectional from W2 onwards.
• Jet Fuel NWE CIF underperformed materially (-17.1% MoM) as aviation demand destruction intensified, with Lufthansa cancelling 20,000 flights through October and KLM cutting 160 May flights from Schiphol.

Cross-Market Dynamics

• May was a crude-driven month, the opposite of April: Brent rolled -10.7% MoM (April avg $120.42/bbl to May avg $107.54/bbl), closing at $93.37/bbl on 29 May, and products fell with crude rather than leading it; Dated Brent premium over ICE Brent futures collapsed from a record $35/bbl mid-April to $3/bbl early May.
• ULSD cracks vs Dated Brent (at 7.45 bbl/mt) compressed only modestly: ULSD NWE Barges $50.83 (Apr) to $48.65 (May), -$2.18; ULSD NWE CIF $54.42 to $51.36, -$3.06; ULSD MED CIF $56.91 to $51.01, -$5.90; road-diesel margins survived the flat-price unwind because the Atlantic Basin supply rebound matched the lower crude flat.
  
  • Gasoil 0.1% cracks held essentially flat MoM (NWE CIF $46.50 to $47.91, +$1.41; Barges $42.59 to $42.76, +$0.17), confirming the May story is not a heating-grade demand event; the seasonal decline in heating demand was offset by structurally tight inventories.
• Jet crack collapsed -$22.80/bbl ($88.03 to $65.23), by far the biggest move in the barrel; the regrade vs ULSD compressed to +$13.87/bbl avg (April +$22.78), closing month-end at just +$8.83/bbl on 29 May as aviation capacity cuts removed jet-specific demand while diesel kept its margin.

Cross-Regional Dynamics

• MED outperformance unwound completely: ULSD MED CIF vs NWE CIF flipped from +$21/mt premium (April) to -$2.62/mt avg in May, opening at -$41.25/mt (an inversion) on 1 May and closing at +$0.75/mt on 29 May; MED diff vs LSGO collapsed from +$71.04 (Apr) to +$16.74 (May), -$54/mt, as Mediterranean buyers exited panic mode for replacement barrels.
• Atlantic Basin filled the East-of-Suez gap: EU+UK diesel/gasoil arrivals rebounded to ~1.5 mb/d in first 18 days of May (+16% YoY) [IndexBox via Argus]; US contributed 49% of ARA gasoil imports in May, +400 kbd YoY alone, more than offsetting the entire East-of-Suez shortfall (Vortexa).
  
  • East-West gasoil arb closed: Singapore Gasoil 10ppm avg $155.44/bbl (-20.5% MoM) vs NWE ULSD Barges $156.19/bbl avg (in $/bbl terms), flipping the April +$24/bbl Singapore premium to -$0.75/bbl parity; the reverse-arb that drew cargoes East in April is now gone.
• ARA gasoil stocks averaged 6-7% lower MoM at lowest in 2.5 years and 18% below year-ago, despite May imports of 236 kbd vs 143 kbd in March (US 49%, Saudi Arabia 15%, Germany 9%); inventories drew even as flows rose, suggesting demand resilience under the lower prices.

Curve Structure

• Bear steepening on ICE LSGO (GX0000300): M1 fell -$266.75 (-20.5%) from 1 May to 28 May while every other tenor fell less (M2 -16.4%, M3 -12.5%, M6 -5.2%) and M12 was essentially flat at +0.3%; the prompt sold off hardest as the Hormuz scarcity premium priced out of the front. Curve spreads in the table reflect 1 May to 28 May close.
• M1-M12 backwardation halved from +$475.25/mt (1-May) to +$206.00/mt (28-May), -$269.25; M1-M2 narrowed from +$77.00 to +$11.25, -$65.75; M1-M6 from +$319.75 to +$104.25, -$215.50; the entire curve flattened materially but stayed in backwardation.
  
  • Daily Structure narrowed across all six markets but stayed in backwardation throughout (zero contango days): structure averaged -$1.14 to -$1.53/mt in May vs April’s -$3.11 to -$4.44/mt; MED markets eased fastest (ULSD MED -$4.44 Apr to -$1.23 May), confirming the MED outperformance unwind.
• Back-end flat (M12 +0.3%) signals the market is pricing IEA’s assumed 3Q26 Hormuz reopening; the front collapsed because the acute scarcity is gone, but the back is unchanged because the structural disruption hasn’t been fully resolved.

Price Volatility

• May CVs at ~6.7-7.2% across the gasoil/ULSD complex, the third consecutive monthly decline from the March 13.77% peak; sequential unwind continues (Mar 13.77% to Apr 9.68% to May 6.81% for ULSD 10ppm NWE CIF). The 29 May cliff-day price (-2.1% on ULSD CIF) re-expanded May variance vs the 28 May read.
• Hedging models calibrated to pre-war 4-5% CV range now underestimate current risk by ~1.4-1.7x (vs ~2.5x in April), the unwind continues but pre-war regime not yet restored; below 5% would signal full normalisation.
  
  • Gasoil 0.1% NWE Barges remains the most volatile at 7.19% (vs ULSD 10ppm Barges at 6.77%); the heating-grade barge market has not fully unwound, consistent with the persistent Barges diff widening (-$35.65 Apr to -$44.70 May).
• Volatility regime convergence trajectory remains intact: another month of similar magnitude moves brings CV back into the 4-5% pre-war range, but a Hormuz-event-driven re-pricing in either direction (escalation or full reopening) would re-expand volatility immediately.

Something to Watch

• Hormuz reopening as the binary catalyst still pending: Strait remains mostly closed despite US Project Freedom (launched 4-5 May); renewed incidents reported late May (US destroyed drones near strait; Kuwait intercepted missile; Iran warned about unauthorized vessel entries); IEA assumes flows resume gradually from 3Q26. Confirmed reopening triggers a further -10% to -15% retracement on ULSD flat and full M1-M12 collapse; collapse of peace talks reverses the bear steepening within sessions. Monitor: daily Lloyd’s List Hormuz transit count; insurance war-risk premium; Iran-US peace proposal status.
• Atlantic Basin supply durability as the inventory canary: PADD 3 utilization at 97% mid-May (+5pp YoY) reflects US administration request to refiners to curtail spring maintenance and maximize summer supply; sustainable rate question for peak hurricane season. ARA stocks at 2.5-year lows despite the import recovery, any disruption to US flows or weather event quickly re-tightens NWE. Monitor: weekly EIA US distillate exports; Vortexa/Kpler Europe-bound arrivals; hurricane season forecast.
  
  • Within that: weekly ARA gasoil stocks remain the cleanest single read on European physical balance; sub-13 mb bbls signals deepening tightness; recovery above 15 mb bbls signals proper rebalancing.
• Aviation demand destruction trajectory determines the jet underperformance signal: Lufthansa 20,000 cancellations through October ongoing, KLM, Turkish, Air Transat all trimming summer capacity; if cuts deepen (Lufthansa CityLine fleet grounding fully implemented), the May regrade compression (Jet vs ULSD +$13.87/bbl avg, +$8.83/bbl on 29 May close) extends further into single-digit territory and Jet leadership of the European distillate complex remains structurally broken into peak summer. Monitor: weekly aviation capacity announcements; IATA jet fuel price monitor; ARA jet stocks vs gasoil stocks divergence.

Note: All figures, prices and market activity referenced in this report are based on the period 1 to 29 May 2026. LSGO futures M1-M12 spreads in the CURVE STRUCTURE table reflect 1 to 28 May.