Diesel is well-supplied at Amsterdam-Rotterdam-Antwerp (ARA) hub, buoyed by strong refinery output, draws on stocks and unusual barge imports from Germany, but expectations of a tight summer are building.
Refineries at ARA have run hard in recent weeks, aiming to capture strong middle distillate margins, according to market participants. Diesel refining margins have fallen from a record high of $79.22/bl on 20 March but remain elevated, settling on Thursday, 23 April, at $53.93/bl, 80pc higher than before the US-Israel-Iran war began.
Suppliers have started to lean into inventories, reluctant to pay high prices. Independently-held stocks of diesel and other gasoil at the hub have fallen by 11pc in the past two weeks to an eight-month low, according to Insights Global. Wider stocks have also been drawn down, market participants said.
Unusually, German traders have also shipped diesel along the Rhine river to ARA in recent weeks, in a rare reversal of the usual flow. Low German prices make that trade workable, with domestic demand very weak and oversupply in the country's southwest and west.
German consumers have relied on inventories more, driving consumer heating oil tank levels to a more-than-six year lows and diesel tanks to a 21-week low. Reverse Rhine flows have started to wind down now, regional market participants said.
Those three boosts to supply have brought down barge prices at ARA. Argus assessed diesel barges loading on a fob ARA basis at a $9/t premium to the front-month Ice May gasoil futures on Thursday, down from a premium of $78/t a week earlier. Barge traders have been active, market participants said. A trader said TotalEnergies has supplied large amounts from its 338,000 b/d Antwerp refinery into the barge market, and Insights Global said physical delivery of the April gasoil futures might have driven activity.
But demand for cargoes has weakened, driven by uncertainty and high prices. Buyers are taking a "waiting" mindset, in a hope that prices will fall instead, most traders said.
Volatility since the start of the war has limited physical liquidity, muting traders' appetite for risk, a trader said. The front-month Ice gasoil futures have moved by more than 10pc on four days this month. This volatility has caused paper and physical traders to reach internal risk management limits on their positions, further reducing liquidity.
Traders described a "binary market" that is difficult to trade, with a lot depending on signals about a resumption of movement through the strait of Hormuz. The final cargo of Mideast Gulf diesel arrived in Europe last week. Europe now has to do without the 20pc of its overall imports that came from the Mideast Gulf, and traders increasingly expect a tight summer.
Replacing this means facing competition for other regions. Arrivals of diesel and other gasoil into the EU and UK have fallen by 38pc on the month to around 695,000 b/d in April to date, which would be the comfortably be the lowest since on Vortexa and Kpler records began in 2016.
Europe can continue to pull on stocks, helped by emergency releases in Europe that favour products over crude., but this cannot be done indefinitely.
Government intervention in diesel markets may place further strain on supply and raise prices through staving off demand destruction. European governments have tried to curb price rises, with fuel duty cuts the most common measure.
