U.S. Diesel Exports to Europe Slump as Distillate Markets Tighten

U.S. diesel exports to Europe have tumbled so far in February amid lower refinery output and tighter supplies in America, which have decreased arbitrage opportunities and further tightened European diesel supplies.  

Europe’s imports of U.S. diesel have nearly halved so far in February to 6.65 million barrels, down from a seven-year high imports of 11.44 million barrels in January, according to an analysis by ship tracking firm Kpler cited by Reuters. 

The lower imports of U.S. diesel have added to Europe’s current struggles to secure distillate volumes, amid tightening supply due to the Red Sea shipping disruptions.

With many tankers now avoiding the Red Sea/Suez Canal route, diesel supply to Europe from Asia has become more expensive as freight and insurance rates have jumped and vessels are making a longer trip all around the Cape of Good Hope in Africa. This has led to a rally in Europe’s diesel prices, which has threatened to test the resilience of European economies which have narrowly avoided recessions in recent months.

The U.S. hasn’t been able to materially boost diesel exports to Europe this month, due to a tight domestic distillate market, too, as well as a slump in refinery runs because of the cold snap in January, the outage at BP’s refinery in Whiting, Indiana, and planned seasonal maintenance at other U.S. refineries, including the biggest, Motiva Enterprises’ 626,000 bpd refinery in Port Arthur, Texas.

In the week to February 16, U.S. distillate fuel inventories, which include diesel, fell by 4.0 million barrels, and are about 10% below the five-year average for this time of year, the EIA’s latest weekly inventory report showed.

The tighter U.S. diesel market has led to a surge in U.S. diesel refining margins in recent weeks, which has nearly closed arbitrage opportunities to ship the fuel to Europe.  

In the spring, the return of U.S. refining capacity from outages and maintenance and the expected rise in Europe’s diesel prices due to European refinery maintenance is set to re-open the arbitrage for U.S. diesel exports to Europe, analysts tell Reuters.

By Tsvetana Paraskova for Oilprice.com

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