European diesel and gasoil imports drop steeply

Europe imported just 4.6mn t of diesel and gasoil in May, down from 5.9mn t in April, with most traders continuing to avoid Russian product in spot markets and price spreads making shipments from India and the US less viable.

Europe took under 2.6mn t of diesel and gasoil from Russia by sea in May, according to Vortexa data, down from just over 3mn t in April and almost 3.3mn t in May last year. This marks the lowest monthly volume from Russia since October last year.

Term supplies are still flowing from Russia into Europe without interruption, and for that reason Russia continued to be the largest contributor to Europe's seaborne imports, albeit taking a lower market share than the same time last year. Russia accounted for 56pc of seaborne diesel and gasoil deliveries to Europe last month, compared with 62pc a year earlier.

Europe's alternative suppliers all provided lower volumes in May compared with April. Saudi Arabia contributed around 520,000t, India around 540,000t, the UAE around 250,000t and the US around 170,000t — all down by between roughly a quarter and a half month-on-month.

Differentials between prices in Europe and other regions have been extremely volatile in recent months but they generally turned less favourable for importing to Europe in May. Diesel cargoes delivered to northwest Europe remained broadly cheaper than those loading on the US Gulf coast, making arbitrage shipments difficult to justify.

Front-month Ice gasoil futures averaged a premium of nearly $14/t over front-month Singapore gasoil swaps last month, down from a premium of more than $26/t in April. With freight costs and the steeply backwardated structure in paper markets weighing on the value of products in transit, a much larger premium would have been needed to justify arbitrage flows from east of Suez.

India is the only one of those suppliers to be shipping significantly more diesel and gasoil to Europe than it was a year ago — Europe took around 350,000t from India in May last year. European market participants have been expecting India to take a leading role in filling the gap in diesel supply left by Russia as the continent gradually freezes out imports from its main supplier. Europe's imports from India are highly sensitive to arbitrage economics and range from around 200,000t/month to 1mn t/month during a typical year.

France remained the largest diesel and gasoil importer in Europe last month, followed by Turkey. France imported nearly 1mn t, which is typical. Turkey imported around 500,000t, also typical.

But the next two largest importers, Germany and the UK, both imported less than usual. Germany took under 300,000t for only the second time in the last 12 months. And the UK imported just under 400,000t, its lowest volume since June 2020. The UK oil industry has engaged in some of the most united self-sanctioning of Russian oil imports since the invasion of Ukraine started in February, according to market participants.

European diesel prices have indicated a shortfall in supply since late last year, with front-month gasoil futures pricing far above those for later delivery. But diesel margins to crude were actually slightly lower on average in May than in April. This was partly connected to the EU announcing on 4 May its proposal to phase out Russian oil imports by the end of the year, which alleviated concerns that an embargo might be implemented sooner. Margins have been rising again since late May though, reaching $43.72/bl on 31 May, the highest since 5 May.

By Benedict George