Constrained German supply meets demand, could tighten

Ongoing refinery maintenance and repeated plant outages have not led to a diesel supply shortage in Germany yet, but Russia's export ban might indirectly reduce product availability in the coming weeks.

The rise in diesel sales last week was largely the result of increased domestic agricultural demand from ongoing maize and potato harvests in Germany. Declining industrial diesel tank levels, according to Argus data, also indicate heightened fuel consumption by farmers.

While the volume of diesel trades submitted to Argus rose by 21pc week on week, product availability remains strong. This suggests that despite ongoing maintenance at the 257,000 b/d Gelsenkirchen refinery and the 103,000 b/d Hamburg refinery, and two plant outages at the 207,000 b/d Bayernoil refinery, supply in Germany is still adequate to meet demand.

Traders expect middle distillate demand to increase further in the coming month. Companies in Germany usually start stocking up with diesel around mid-October ahead of a mandated switch to winter specifications on 15 November. On top of that, a significant increase in Germany's CO2 price as well as its GHG quotas from January 2024 is likely to encourage buyers to stock up on middle distillate before the end of the year.

Since diesel exports from the US to Europe are expected to rise in October because of profitable arbitrage economics, any additional German demand should have been met by higher import volumes via the Amsterdam-Rotterdam-Antwerp hub (ARA). Water levels on the Rhine are currently only permitting barge loadings of up to around 60pc capacity for destinations along the Upper Rhine. Water levels are forecast to fall continuously until the end of the first week in October, further restricting barge loadings and making imports via the Rhine more costly.

At the same time, diesel flows into Europe could be negatively affected by Russia's 21 September announcement of a ban on diesel and gasoline exports, aimed at stabilising its domestic fuel market. The extent to which the export ban will actually reduce the availability of diesel in Europe in the coming weeks mainly depends on how long the ban stays in effect, according to traders. Another factor is the quantity of non-US diesel that finds its way to Europe during the ban as countries including Turkey, which previously imported Russian diesel and thus shipped their own production elsewhere, may now reduce their exports.

By Johannes Guhlke