FEATURE: Brazil well supplied in otherwise troubled Latin America diesel market

Brazil may have an enviable position this spring in the Latin American ultra low sulfur diesel market: It has enough supply.

"Demand is down a little bit and you have a good number of vessels that were booked for the end of April and May," a Brazil source said. "So Brazil became a little bit long or not as short as it was. You probably won't see the same performance in May as you saw in April. April was a very stressed month for us."

Brazil was indeed the center of focus for clean fixtures in early April out of the US Gulf Coast, with reports of up to half of the flurry of fixtures in that first week directed to Brazil. Freight rates surged 100% on the interregional benchmark route from the USGC to Brazil that first week, but have come down almost as far since.

Platts cFlow ship and commodity tracking software from S&P Global Commodity Insights was showing some of that activity now on the water to Brazil, with 27 laden or part-laden vessels, including four LR1-sized capable of carrying 500,000 barrels or more: Polar Unicorn, Torm Ismini, Sauger and BW Seine. Ship fixtures on April 5 reported Valero to have chartered BW Seine for ULSD to Brazil for w210, a Worldscale rate lower than the record w500 that occurred days later and has since fallen by half.

The total volume en route to Brazil was roughly double that in previous months. Most of the vessels were 300,000-barrel sized Medium Range cargoes, although some were smaller. At least four were coming from Asia or Africa, Platts cFlow showed, including the Hafnia Spica carrying gasoline from Morocco, Marlin Ametrine from India and UACC Mansouria carrying lube oils from Singapore. Some ships also appeared to have unloaded earlier originating from the ARA region in Europe.

"Brazil is buying more from the AG or ARA," a second source said. "I think they are cheaper at the moment."

Some cargoes were showing ultra low sulfur diesel or gasoline, although many just listed clean products.

Diesel prices soared to record highs in early March and nearly again to those levels in recent weeks as marginal cargoes from the refinery-rich USGC get directed to Europe to fill supply lost from Russia after its invasion of Ukraine. Brazil's import parity prices rose $4.91 to $178.81/b for Santos ULSD April 27, close to its March 8 record of $179.26/b.

Latin American tender activity has slowed considerably since February, with entities paying hefty premiums, reducing volumes, or postponing tenders until absolutely necessary. Petroecuador on April 26 awarded one of the few large tenders for seven premium diesel cargoes at a $4.68/b premium to the Platts benchmark USGC ULSD pipeline assessment, compared with discounts earlier this year.

Large tenders are fewer than normal, but small tenders have been increasing lately, with Colombia heard April 27 tendering again for ULSD for a quicker than normal May 12-21 delivery. Chile is also said to be in the market due to a recent refinery issue in the country. Colombia, one of the few Latin American nations that export ULSD, has had a continual inland refinery issue for months causing them to save their export barrels or even import diesel.

In Argentina, service stations started rationing ULSD at one point as imports slowed due to local prices which was 30% less than import parity prices. An earlier rush for high sulfur diesel for power generation has muted, however.

Some one-cargo purchases for ULSD for Argentina road transport have been heard, but the country's wholesale power administrator, Cammesa, recently reduced a five-cargo HSD tender down to three purchased cargoes, already less than the 18 sought in February during a heat wave that reduced hydropower generation. However, sources said Argentina now has too many HSD cargoes, as heavy rains have renewed hydropower.

"Demand is falling off way too fast versus expectations and hydro is in full force," a third source said.

The same situation is not the case for Argentina's ULSD supply. The first source said some companies in Brazil have been eying whether to sell excess barrels into Argentina. He said one of the newly privatized refineries even made its first export of product into Argentina. Most companies like his are still focused solely on Brazil, he said, but "at least I have alternatives if the Brazil price is not attractive."

"In Brazil, there are high inventories of diesel," a fourth Latin American source said. "They want to get out of those volumes and that's why they don't raise or lower prices. On the other hand, in Argentina, there is a lack of product and low inventories."