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US east coast diesel fills US Gulf-Europe gap

02 May 2017 20:21 (+01:00 GMT)
US east coast diesel fills US Gulf-Europe gap

Houston, 2 May (Argus) — Ample product availability and inexpensive freight rates helped increase diesel exports from the US east coast to Europe, filling a hole left by US Gulf coast diesel shipments being drawn to Brazil.

Several clean cargoes have been booked from the US Atlantic coast to Europe, including the British Tranquility, the Flagship Privet and the Himalaya, fixture reports show. The Evinos will arrive in Portland, UK, on 5 May after loading product in the Philadelphia area about a week ago. The cargoes are likely to be ultra-low sulphur diesel (ULSD), in contrast to the usual high-sulphur diesel exports out of the northeast.

The arbitrage to export diesel from the northeast to Europe widened as Brazil drew an increased volume of diesel from the US Gulf coast, where the bulk of US diesel exports to Europe typically load.

A domestic price hike in Brazil on 21 April caused that surge in diesel cargo bookings from the US Gulf coast. Up to 3.3mn bl of diesel on 11 ships were seen fixed from the Gulf coast to Brazil over the past week, compared with 2.1mn bl on seven cargoes booked to Europe.

This created an opportunity for diesel sellers in the northeast, where inventories are relatively high and ample vessel availability has depressed freight rates.

Distillates inventories in the central Atlantic region — where exports to Europe will load —reached 32.62mn bl during the week ended 21 April, up by more than 1mn bl from year-ago levels, according to the US Energy Information Administration.

The transatlantic freight rate from the east coast to Europe averaged $8.84/t in the past week, down from $10.14/t a week prior, marking the lowest levels since late February.

In Europe, ongoing refinery maintenance and a dip in diesel supplies from Russia also created an appetite for US diesel. But turnarounds will begin to wrap up by the end of the month, providing a limit to imports.

As sellers on the Atlantic coast and Gulf coast find profitable export markets, domestic arbitrage between the two regions has remained unfavorable since March last year, with a very brief exception during a September shutdown of the Colonial Pipeline.

ULSD in New York Harbor has averaged a premium of just over 3¢/USG over the Gulf coast in the past week, below the 5.47¢/USG cost of shipping on Colonial.