Low diesel inventories and high cracks spreads should attract global diesel to Europe

Nevertheless, low diesel stocks and lengthier shipping routes from alternative suppliers are likely to keep diesel crack spreads in Europe high during the winter.

During winter, diesel fuel in Europe is used for peak electricity generation, home heating, and transportation. As of 7 December 2023, gasoil inventories (which include diesel fuel and heating oil) in the major refining and petroleum trading centres of Northern Europe (Amsterdam and Rotterdam in the Netherlands and Antwerp in Belgium — collectively known as ARA) were near the bottom of the previous five-year (2018 – 22) range. Unplanned refinery outages in Europe over the summer, and again more recently, contributed to decreasing inventories since 18 May 2023.

Backwardation in the futures price curve (when near-term prices are higher than longer-dated prices) began increasing in May 2023, around the same time that diesel inventories in the ARA region began declining. Backwardated markets indicate short-term supply tightness. As market participants secure diesel supplies heading into this winter, they are bidding up the near-term prices. Backwardation also increased earlier this year. In January and February 2023, although gasoil inventories were increasing and near their five-year average, market participants bid up the near-term prices (increasing backwardation) to secure supplies before the EU ban on seaborne imports of petroleum products (including diesel fuel) from Russia took effect on 5 February 2023.

Prior to the petroleum product import ban, diesel imports from Russia made up a significant portion of Northwest Europe’s total diesel imports. Since the ban, diesel imports into Northwest Europe from the US, India, and several countries in the Middle East have increased.

According to Vortexa Analytics, from January 2022 through January 2023 (the month prior to the EU’s ban), diesel imports from Russia into Northwest Europe averaged 380 000 bpd. Between February 2023 and November 2023, diesel imports from Russia fell to nearly zero. Global diesel trade adjusted, and several countries increased exports to Northwest Europe, replacing Russia’s barrels. Northwest Europe has remained relatively well supplied with diesel fuel despite several recent refinery interruptions that limited supplies from India and the Middle East.

From January 2022 to January 2023, diesel exports from India to Northwest Europe averaged 55 000 bpd and increased to 110 000 bpd between February 2023 and November 2023. Recent maintenance at Reliance’s Jamnagar refinery reduced diesel exports from India to Northwest Europe in October to an average of 80 000 bpd. Exports in November increased to 176 000 bpd, reflecting a partial restart of the Jamnagar refinery, according to trade press reports.

Diesel exports from Saudi Arabia to Northwest Europe averaged 80 000 bpd between January 2022 and January 2023 and increased 68% (54 000 bpd) between February 2023 and November 2023, the largest volumetric increase from a country in the Middle East. Kuwait, the UAE, and Qatar also increased their exports, together totalling an increase of 74 000 bpd over the same time periods. However, diesel exports from the Middle East to Northwest Europe fell to 166 000 bpd in November, the least since December 2022.

The low diesel exports from the Middle East to Northwest Europe in November 2023 were driven in part by maintenance at the SATORP refinery in Jubail, Saudi Arabia. Exports from Saudi Arabia fell from 148 000 bpd in September to 44 000 bpd in November 2023. In addition, operations at Kuwait’s Al-Zour refinery were temporarily shut down in early November, reducing diesel exports from Kuwait to Northwest Europe from 79 000 bpd in September 2023 to 3000 bpd in November 2023.

Diesel supplies from the Middle East are likely to increase over the next few months as refineries complete their maintenance. Maintenance at the SATORP refinery was scheduled to be completed in mid-November, and trade press reports indicate the Al-Zour refinery is now fully operational but will gradually ramp up to its full refining capacity of 615 000 bpd. In addition, Oman’s Duqm refinery recently exported its first shipment of diesel fuel, and the refinery is expected to reach full capacity by the end of this year, providing additional diesel barrels to global supply.

Diesel exports have also increased from the US to Northwest Europe. From January 2022 to January 2023, exports averaged 72 000 bpd but increased 98% to 142 000 bpd between February and November 2023.

The longer voyages from new sources and low inventories have increased diesel crack spreads. As of 8 December 2023, diesel crack spreads in the ARA region were 69 cents/gal, well above the previous five-year average of 36 cents/gal. Several uncertainties remain, however, and could alter diesel supplies in the ARA region. The severity of winter weather and supply of natural gas may affect the demand for diesel fuel. Natural gas supplies in Europe are relatively high now, but colder weather could increase inventory draws as heating and electricity demand increases. Additional refinery outages or delays restarting refineries may occur, which would limit global diesel supply.

Read the article online at: https://www.hydrocarbonengineering.com/refining/14122023/low-diesel-inventories-and-high-cracks-spreads-should-attract-global-diesel-to-europe/