Diesel spot trading slows to a crawl in Europe

European diesel spot markets have grown quiet in recent weeks, reflecting little incentive to buy and a range of challenges in selling.

No diesel cargoes have traded in the Platts e-window in almost a month, in either northwest Europe or the Mediterranean. The most recent trade was Trafigura buying a spot cargo from Glencore on a cif Immingham basis on 26 May.

Traders say they have little need for spot cargoes at the moment, in the e-window or outside it. This is partly because end-user demand is being suppressed by exceptionally high retail prices. For the most part, term volumes — whether imported from outside Europe or supplied from within — are proving sufficient to meet demand, and few traders need to add from the spot market.

The steep backwardation in the Ice gasoil futures market is also a strong disincentive to buy spot diesel. With prompt prices much higher than forward values, it is costly to hedge diesel while it sits in a storage tank. This tends to encourage a 'hand-to-mouth' approach where traders only buy what they need to meet prompt demand from their customers, taking as little as possible in spot markets, often nothing at all.

And for those resolved to avoid Russian product — which is the vast majority of European trading firms at present — spot diesel supply in Europe is very limited. Before Moscow's invasion of Ukraine, Russia was the main source of Europe's diesel and gasoil imports.

Furthermore, Europe's other key diesel suppliers, such as Saudi Arabia and India, are offering lower volumes than usual at the moment because markets east of Suez are themselves tightly supplied. Saudi Arabia, the UAE and the US all delivered less diesel and gasoil to Europe last month compared with April and compared with May 2021, while arrivals from India dropped month-on-month, according to Vortexa. Besides Russia, these are Europe's biggest diesel suppliers.

Empty window

Price reporting agency Platts changed the basis of its European benchmark diesel price assessment on 1 June to exclude Russian-origin product. There have been no trades in the e-window since then. The platform is designed for trading 30,000t cargoes on Handysize vessels. Most of these cargoes come from Russia, and buyers are unwilling to buy them so publicly, if at all.

With little prospect of completing a trade in the e-window, sellers who need to offload Russian diesel are using other routes, such as taking the product to the Amsterdam-Rotterdam-Antwerp (ARA) hub and delivering it through Ice gasoil futures, which will permit Russian diesel until next year.

Europe's other major diesel suppliers use larger vessels for economic reasons, given they are significantly further away than Russia. The US ships diesel to Europe on Medium Range (MR) tankers, while suppliers east of Suez use Long Range 1 (LR1) or Long Range 2 (LR2) vessels. While it is possible to offer a 30,000t cargo from one of these larger tankers in the e-window, the rules of the platform make it inconvenient to do so and it is hardly ever seen. It is also possible to transfer diesel ship-to-ship from a larger vessel to a Handysize, but this comes with its own costs.

By Benedict George