Traders consider rare diesel exports from Europe to US

Trading firm Hartree is looking for a tanker to load 60,000t of low-sulphur diesel in Portugal with options to discharge in the US, the opposite of the usual direction of transatlantic diesel flows. It comes as US diesel prices soar above values in Europe.

Hartree is seeking to load the cargo in Sines and wants the option to employ the tanker as floating storage. A steepening contango structure in Ice gasoil futures may soon make floating storage profitable again, according to market participants. The strategy was heavily employed in the spring.

Europe is a net importer of diesel and the US is typically the region's third-largest supplier, which means volumes travelling in the opposite direction are rare and indicative of peculiar market conditions. Less than 200,000t of diesel and other gasoil has travelled from Europe to the US so far this year, mostly during the spring.

The recent collapse in European diesel prices has created economic incentives to ship the product west across the Atlantic. Diesel cargoes loading on the US Gulf coast were assessed at a premium of $22.15/t to cargoes delivered to northwest Europe on 7 September, the highest since May 2018. A recent drop in US gasoline demand, as reported by the EIA, may be discouraging domestic refiners from raising crude runs to meet diesel demand.

The US typically exports diesel to Europe even when domestic prices are at parity or a small premium to those in Europe. And eastbound transatlantic diesel shipments are continuing despite the current arbitrage dynamic.

US diesel demand has more or less returned to year-ago levels, which has lifted US diesel prices far above those in Europe. Although implied US gasoil demand fell by 5pc to 3.7mn b/d in the week to 4 September, according to EIA data, it was just 2pc down from a year earlier.

Extreme market conditions have prompted a number of unusual diesel tanker movements in recent weeks. Trading firms Vitol, Trafigura, Glencore and China's state-owned Unipec booked a total of 560,000t of diesel/gasoil to load in China and South Korea with European discharge options last month. Under 350,000t was shipped on those routes during the whole of 2019, according to Vortexa data.

The US has also imported rare jet fuel cargoes from Europe recently. And relatively strong US jet prices have prompted trading firms to divert Indian jet fuel cargoes bound for Europe to the US Atlantic coast.

By Benedict George