Latin America adjusts to third wave of import diesel prices reaching record levels

Latin American diesel saw its third big wave of near-record prices in June even as sources said June 10 that production has gone all out to try and keep up with high demand.

Countries from Mexico to Argentina are looking to buy, sometimes in a big way, but for different reasons. Mexico has experienced refinery issues since an earthquake disrupted its major Salina Cruz refinery, while Argentina is in the busy harvest season. The southern part of South America is also gearing up for winter weather, which means more gasoil for power generation and transportation.

In Argentina, wholesale power administrator Cammesa is said to be tendering for five cargoes of high sulfur diesel, while YPF is said to tender for up to three cargoes of ultra low sulfur diesel. Petroperu just asked for five ULSD cargoes, weeks after buying three cargoes. Ecuador has two tenders due in June, one June 16 for six premium diesel cargoes and one June 28 for a three-year diesel and gasoline contract for up to half their yearly supply.

"It's a heck of a time to lock in a three-year contract," said a market source. He also cited "a big uptick in diesel" from the Arabian Gulf/India to Brazil. "It should all start arriving end-June to early July."

But in one shift from the previous record-setting price waves in March and again in early May, some relief may come from Latin America itself. Colombia is exporting ULSD again, with Novum bringing in one cargo May 31 to Puerto Rico from Colombia already and a ship fixture showing another loading in Colombia upcoming within days. Refineries in Brazil and Mexico are also running very efficiently, despite some hiccups, such as the earthquake.

The first source said so many cargoes may be en route to Latin America now that they are rerouting to other places in need. "I have seen some ULSD that was going to Brazil, change and head to Europe recently," he said. "So, the situation is fluid. Back to the good old days."

Felipe Perez, Latin America downstream strategist for S&P Global Commodity Insights, said Colombia exports and few refinery troubles aside, Latin America is not seeing much relief. "Prices are high but demand is not reducing or slowing down much in Latin America. Why? Because even in places with import parity, the government is subsidizing."

Platts' import parity prices for Peru, for instance rose 84 cents/b to $189.09/b for ULSD June 10, the highest price since the May 4 record of $192.95/b, a peak in a run that beat the previous record of $177.68/b March 8. All three waves came after Russia's invasion of Ukraine stunted a big source of distillate supply into the global market, especially Europe. The same story holds in Argentina, where delivered CIF cargo assessments at $184.66/b June 10 dipped $1.56 from the previous day, which was the highest price since the May 2 peak of $188.58/b, itself shy of the record $189.31 March 8, according to the Platts assessments from S&P Global.

"There's major tension in news. Argentina has some shortages. Brazil is very, very worried about it. Similar things like you see around the world. Stocks are very low," Perez said. "The market is very tight and it's difficult to find sources. If I want to buy diesel for a little bit longer contract, they'll tell you sorry, buddy, I'm not going to give it to you. Not anymore.

"Brazil, Mexico, Argentina and even Chile, what are they going to do?" Perez said. "There's not much more they can. Their refineries are running as hard as they can."

State oil companies are paying higher premiums but are also trying to cope again by buying only what they need, canceling tenders, reducing volumes, and reducing delivery windows as they widen sourcing to Asia, Europe, the Middle East, and Africa as well as the traditional US Gulf Coast origin.

"They are buying and selling like crazy." a second market source said of Latin America. "And they all ask for offers at the last minute. It is very difficult to get to Argentina in a few days."