Transatlantic diesel flows reverse toward NYH

European refiners are increasingly targeting the New York Harbor market as an outlet for diesel in addition to gasoline, while US Gulf coast exports to Europe have slowed to a trickle.

Ample diesel availability in Europe and the recent slowdown in pipeline supply from the US Gulf coast bolstered transatlantic diesel exports to New York in March while suppressing flows from the US Gulf coast to Europe.

Around 95,000 b/d of European diesel arrived in New York in March, the highest level in at least three years, according to estimates from Vortexa. In the November–March period diesel flows from Europe to New York Harbor averaged around 64,000 b/d. Before last November diesel did not consistently move on the transatlantic route, with sporadic cargoes spread out over the years.

Gulf shipments to NYH slow

The March surge in Europe-New York diesel imports in part compensated for a lack of domestic pipeline supplies of Gulf coast diesel. The Gulf coast refinery processing rate fell to the lowest level on record in mid-February after a severe winter storm caused shutdowns and lengthy restarts into March. Refinery runs have since steadily increased, but remain below pre-storm levels as of early April, data from the US Energy Information Administration (EIA) show.

A lack of availability as well as more attractive outlets led to a dearth of diesel input into the Colonial pipeline over the past two months. Other higher-priced outlets for Gulf coast diesel suppliers include exports, which allow refiners to avoid paying compliance costs related to US renewable fuel mandates, as well as the midcontinent market, where the same winter storm devastated fuel production across Oklahoma and Kansas. Moreover, parts of the midcontinent are in the throes of the spring planting season, which tends increase diesel demand. As a result, an increased amount of arbitrage diesel supply from the Gulf coast has been channeled into the midcontinent market in recent weeks.

As exports and the midcontinent siphon Gulf coast diesel away from the Colonial system, transit times have lengthened significantly from the Gulf coast to the New York Harbor market. Last week Colonial pipeline said it had no diesel input from Houston at all.

The slowdown in Colonial pipeline shipment from the Gulf coast also left openings in the US Southeast waterborne market for European exporters. Charleston, South Carolina, and Savannah, Georgia, drew two European diesel cargoes in February and March, Vortexa data show. Prior to February, European diesel rarely found its way to the southeast market.

European excess grows

The recent rise in New York Harbor diesel imports continued a trend that picked up in November.

Cargo loading schedules show diesel exports from Russia to Europe are set to rise this month, adding to the supply overhang in Europe. More importantly, extended lockdown measures across Europe are set to shave regional diesel demand.

Europe's diesel excess is also evident in the drop in transatlantic exports from the US Gulf coast. US Gulf coast diesel loadings to Europe fell to an average of around 41,000 b/d in the November-March period, far less than the 1.06mn b/d during the November 2019-March 2020 period. This volume was also less than 70pc of the diesel that moved from Europe to New York Harbor in the same period, a remarkable change considering the US Gulf coast–Europe diesel route was one of the most robust trading routes in the world just a few years ago. Now, most of Gulf coast's diesel supply finds its way to Latin America.

By Chunzi Xu