(Bloomberg) -- Europe is poised for a deluge of diesel imports this month as a surge in shipments from US coincides with super-sized cargo arrivals from Saudi Arabia.
The influx will hit a European market in which Germany, France, Spain, Italy and the UK have all reported patchy demand this year. Europe is an important global source of buying for the fuel globally.
Diesel and gasoil imports in the European Union and the UK are expected to surge to about 1.28 million barrels a day in the first half of October, according to early estimates of data compiled by Bloomberg from analytics firm Vortexa Ltd. That puts it on course for the highest average flow since February last year, when the EU banned purchase of Russian fuels in protest at the war in Ukraine.
The surge from the US Gulf is largely due to low demand for the fuel in US markets, said Pamela Munger, a senior market analyst at Vortexa. That, in conjunction with plenty of tankers being available, has made for a profitable trade delivering the fuel to Europe, she said.
Diesel’s premium to crude oil, an important metric for traders and refiners, is now at about $16 a barrel, half where it was back in February, ICE Futures Europe data show.
Europe’s imports from the US are expected to reach about 417,000 barrels a day in the first half of October, the highest in Vortexa data since the start of 2016. Those from Saudi Arabia is set to jump to 370,000 barrels a day, the highest in four years.
Clean Up
The figures are still subject to revision as more destinations and information about cargoes become known. If the current rate is maintained, the flows will just surpass the level set in August.
An escalation of attacks on merchant ships in the Red Sea has prompted more eastern cargoes to take the longer route to Europe via the Cape of Good Hope. The diversions have encouraged traders to adapt supertankers — usually deployed to move crude oil — to ship diesel instead.
“Changing freight dynamics are keeping wider European markets well supplied for diesel going into winter especially from the East of Suez,” Munger said.
The Saudi flows mean overall imports from the Middle East and Asia should climb to a four-month high at about 663,000 barrels a day. That includes fuel aboard three very-large crude carriers and one Suezmax.
Seasonal refinery work, coupled with run cuts by some European refiners may help absorb these high diesel imports for now. However, persistent weak demand may add pressure to European diesel profit margins.
“As refinery turnarounds come to a close and run rates recover, diesel imports into the EU will have to fall back,” said Ajay Parmar, director of oil markets and energy transition at data intelligence firm ICIS. “Otherwise, European diesel margins could face significant pressure, particularly as we head towards the end of the year.”
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