(Bloomberg) -- A flood of diesel is arriving in Europe as giant tankers that would normally transport crude oil instead discharge large cargoes of the refined fuel from thousands of miles away in the Middle East.
Imports for August are on course to be the highest for any month since January 2023, according to data from analytics firm Vortexa Ltd. The arrival of one supertanker already boosted the figures, while a second is currently in port and a third is floating in the Mediterranean.
It’s unusual for so-called very large crude carriers, or VLCCs, among the oil industry’s biggest tankers, to haul refined fuels.
However, with shipping lines at large trying to avoid attack by Yemen’s Houthi rebels in the Red Sea, earnings for smaller vessels have surged, while those for supertankers have been subdued partly thanks to OPEC+ crude oil curbs. With the diesel being hauled the long way around Africa to avoid the militants, it has created an incentive for some tanker owners to chemically clean their ships to haul the fuel instead.
The distance ships travel — alongside the amount of cargo they transport — is a critical determinant of vessel demand.
“Shipping diesel from East to West got exorbitantly expensive after the Red Sea attacks,” said Eugene Lindell, head of refined products at consultant FGE. “Faced with worsening economics, traders got creative and started cleaning up dirty tonnage to improve economies of scale and arbitrage opportunities.”
Over the past few weeks, traders have booked at least six VLCCs, each capable of hauling 2 million barrel cargoes to move refined fuels, according to Yiling Lee, an analyst at shipbroker Braemar Plc in Singapore. That’s in addition to 27 smaller Suezmax ships that can haul 1 million barrels, she said.
The switch over isn’t easy, and can be expensive.
Crude oil — especially many of the varieties found in the Middle East — tends to be a thick, waxy substance that can stick to the inside of a vessel’s cargo tanks. That risks contaminating the cleaner refined fuels, like diesel and jet fuel, that a vessel can haul if the washing isn’t thorough.
As a result, ships have been anchoring off the coast of the United Arab Emirates and getting their tanks cleaned over a series of washes with water and varying types of chemicals.
So far this month, the Plata Glory discharged diesel-type fuel into Europe and the Nissos Kea — having already delivered some into Greece via ship-to-ship transfer — is unloading into southern France. More may also soon arrive, with the KHK Empress currently floating off the coast of Gibraltar. These are the European Union and UK region’s first imports on VLCCs so far this year, according to Vortexa data.
It’s worth noting that Europe’s import surge of diesel-type fuel is likely more to do with the size and timing of arrivals than any great jump in underlying demand.
The use of VLCCs can help skew monthly statistics, and a general trend toward larger ships used for the trade also risks making data more lumpy.
“There was an opportunity now with arbitrage pricing on products, as well as the lower cost of ships,” Svein Moxnes Harfjeld, president and chief executive officer of tanker owner DHT Holdings Inc., said on a recent earnings call.
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