Middle East diesel exports to Europe slow as US steps in

Middle East diesel shipments to Europe have slowed while the US has moved in with more supplies after Russia's temporary ban on exports.

Europe's diesel imports are averaging 165,000 b/d for October, more than the pace in September at 136,000 b/d, according to S&P Global Commodities at Sea data. The Middle East shipments to Europe are running at 110,000 b/d, with exports from Saudi Arabia and Qatar well below the September total pace of 317,000 b/d. Russia imposed the temporary diesel export ban on Sept. 21 to ease surging domestic fuel prices, removing an estimated 1 million b/d of diesel from the global market, according to S&P Global estimates. US diesel exports to Europe are averaging 188,000 b/d in October, up from 122,000 b/d in September.

Europe's overall increase in diesel imports is largely due to stockpiling in the run up to winter and "panic buying" after Russia's ban, Eleanor Budds, research and analysis director at S&P Global Commodity Insights, said. Europe's stockpiles are relatively low compared with the five-year average, and resupply of diesel to Europe is "further away than before the embargo on Russian imports, which leads to an elevated risk perception if stocks continue to fall."

Diesel and gasoil stocks in the Amsterdam-Rotterdam-Antwerp refining hub hit a 10-month low of 1.827 million mt as of Oct. 12, falling for the third consecutive week, according to Insights Global data. The low stock level was attributed to a high backwardation structure incentivizing suppliers to empty their tanks and rising activity on both the diesel and gasoil side due to a fall in the front-month ICE gasoil contract over the week.

Europe currently relies on diesel imports from the US, India and the Middle East, Russel Hardy, CEO of commodity trader Vital, told a conference in London Oct. 17. In recent months, gasoline and diesel prices were high, putting both products in competition for refineries, he said. Now gasoline cracks in Europe are about $6/b while diesel cracks are at $32-$33/b. "The incentive is now more massively in favor of producing middle distillates," he said. Middle distillates include diesel while gasoline is a light product. Some refinery startups "are not going as quickly as planned" and others are preparing for maintenance. "We will need to see a steadier flow of diesel," he said.

Interactive: Middle East diesel exports to Europe

Seasonal rebound

Fuel oil traders anticipate that high sulfur fuel oil cargo flows from regions such as Fujairah into the Mediterranean may rebound as seasonal power demand from the Middle East has receded with the end of summer.

However, closing West/ East HSFO spreads have weighed against expectations of stronger flows as improved HSFO availability in Europe has weighed on the premium for European barrels over product in Singapore.

Platts assessed the November HSFO East/ West swap at minus $8/mt Oct. 17, up from minus $11.50/mt the previous week.

Low sulfur fuel exports from the Middle East to Europe have sunk as VLSFO exported from Kuwait's Al-Zour refinery and Israel has slowed.

Saudi Arabia isn't offering much diesel for now, a Mediterranean-based diesel trader said. Saudi Arabia's 460,000 b/d SATORP refinery in Jubail started scheduled maintenance in the last week of September and is expected to be out for about 45 days, a source with knowledge of the matter said. Maintenance at refineries is "all over the Med," a source said.

Northwest Europe diesel imports used to be regularly served by Russia, but since sanctions on Russian oil products the supply source for Europe has turned to other regions such as the Middle East and the US. This has led to Northwest Europe diesel prices being more expensive than the Mediterranean, traders said.

"From the US, the arbitrage is still not open, it is looking slightly better but it is still not open," a Mediterranean market source said. "If Europe is not pricing too strong to attract the barrels, the stocks will continue to be low," the person said.