French strikes leave rest of Europe with more diesel

The industrial action that has swept across France in recent weeks has left the wider European market better supplied with diesel than it might otherwise have been in the short term, as a result of heavy disruption to French imports caused by striking dock workers. But with more than half of the country's refining capacity offline, there may be a rush to replenish French stocks when ports resume normal operations.

As things stand, three out of France's six refineries are currently shut and the three others are operating at reduced rates. All are having problems getting crude in and moving oil products out. But the strikes have had a muted impact on diesel margins in northwest Europe so far. Diesel premiums to crude are little changed, averaging around $30.50/bl in March to date compared with around $29/bl in February. This is a far cry from the $66.50/bl average premium last October, when pay-related industrial action shut down most French refineries.

This year's strikes are on a different scale to last year's. They are part of nationwide protests against the government's unpopular pension reforms, extending far beyond refining to schools, railways, airports and ports. Operations at ports have been disrupted to such an extent that France is on track to import less than half as much diesel and gasoil this month as it did in October last year, according to Vortexa data. This is a key reason why the strikes are not having the same effect on diesel prices this time around, traders say.

Dock workers at the Fos-Lavera port complex on France's Mediterranean coast have been on strike since 13 March and will remain so until at least 24 March. Diesel cargoes cannot be unloaded for the time being. Only around 5,000t of gasoil has arrived at Fos-Lavera this month, according to Vortexa, on board a small coaster vessel from Barcelona. Last year, the port received 360,000 t/month on average, making it the EU's third-largest import destination for diesel and gasoil after Amsterdam-Rotterdam-Antwerp (ARA) and Hamburg.

In total, only around 780,000t of diesel and gasoil discharged in France in the first three weeks of March, compared with 1.12mn t in February as a whole and 1.76mn t in January. French ports received around 2.69mn t in October last year, when the last round of strikes created such a shortfall in domestic production that diesel margins spiked to a record high. The disruption to logistics caused by this month's industrial action is delaying the market impact. Traders point out that France will be forced to drain the stocks in its domestic storage and the need to replace those inventories later on will end up tightening regional supply when operations at ports resume.

Another factor distinguishing the latest industrial action from last year's refinery strikes is the knock-on effect on domestic diesel consumption, which is helping to offset the disruption to refinery production. Businesses are likely to be using diesel-fuelled trucks and machinery less than normal. And motorists struggling to refuel because their local service stations have run dry may be forced to drive less. The impact of the strikes on demand coincides with an economic slowdown that has left Europe consuming much less diesel than a year ago. French diesel deliveries last month were 7pc lower on the year and down by 11pc compared with pre-pandemic levels in 2019, according to the latest data from industry association Ufip.

The European diesel market has been gradually tightening of late after a supply glut in February made imports from the east less profitable, slashing volumes arriving in the EU this month. So far, the French strikes are dampening this trend rather than accelerating it — but that may reverse when imports resume.

By Benedict George