Half of Europe’s seaborne diesel imports from other regions now come from the US, up from a quarter a year ago. That leaves Europe’s marginal supply resting on one region, while inventories sit very low, autumn refinery maintenance is looming, and refiners across the Atlantic are already running at record rates. Europe is heading into peak winter demand with less cover than usual.
Supply is tight from different directions at once
Russian diesel exports have been largely absent since July, and while the export ban lifts for producers on 1st of September, drone strikes have taken out a large share of Russian refining capacity, so those barrels may not return quickly (read more here). With Hormuz still disrupted five months on and US + ARA gasoil stocks having never built through the summer (Insights Global via Argus), Atlantic refiners have covered the gap by running their refineries extremely high going into Autumn maintenance season.
Bab-el-Mandeb holds up, but relying on India
The one part of the eastern route still working normally runs through Bab-el-Mandeb, where diesel/gasoil transits bound for Europe reached 200kbd in August, close to the same number last year, after being close to a standstill in March and April. India supplied roughly 60% of that volume, which makes Europe’s eastern cover into September/October a question about Indian refining rather than about the strait itself.
India’s crude cover is running down
Crude/condensate exports pointed to India India have fallen for two consecutive months, to 3.8mbd in August against 4.8mbd a year ago. Refineries have kept running on crude bought earlier, so the export decrease has yet to reach their run rates, but a supply line contracting for the past two months leaves little room to hold diesel exports at the current pace through September and October.
Hormuz still not offering much relief
Clean product traffic through the strait keeps shrinking, with only 37 crossings by MR2s or larger carrying clean products in August (days 1-27), against 55 in July and 69 in June. And while STS activity offshore Oman is continuing to hold strong, the majority is still held by crude transfers, with recent data showing no increase in product transits or STS’ in the region m-o-m in August. The first three weeks of August show 230kbd of West of Hormuz-origin clean product has been transferred via STS offshore Oman, while the same period in June was at 400kbd.
How long can the US carry this
That leaves the US, which supplied about half of Europe’s diesel imports from outside regions in August (520kbd), and even that share is slipping. Exports to Europe peaked near 540kbd in the first half of August before falling to 350kbd during the second half, a drop of 35% in just a few weeks.
Europe’s next few months’ worth of diesel supply therefore depends on an array of unstable sources, while low inventories and an upcoming turnaround season just worsen the pressure. An unlikely strong uptick in Russian diesel exports come September 1st, and a much lower turnaround season in Europe and the US could reduce the supply pressure, but there is not much room for prices to drop off at the moment.
Source: Vortexa
