US diesel export loadings to Europe surged to record highs in July as the trade arbitrage for US diesel to move from the Gulf Coast to Europe remained robust, freight rates eased, and Saudi exports fell sharply.
Loadings of US diesel bound for Europe have risen by more than half so far this month to 517,000 b/d, up from 330,000 b/d in June, marking the highest level since July 2018, according to ship tracking data from S&P Global Commodities at Sea.
Since Russia’s 2022 invasion of Ukraine, Europe has become increasingly reliant on the US for diesel. Sanctions on Russian oil have forced refiners and fuel marketers to rely on trans-Atlantic trade arbitrage economics to source enough supplies. Saudi Arabia, India, and Turkey have also helped fill the regional diesel supply gap. At the same time, Russian diesel seeking new markets has increasingly displaced US diesel exports to Brazil, leaving more US barrels available to export to Europe.
Before the war, Russian diesel had made up more than 40% of Europe’s total diesel imports. July levels of US diesel imports to the region now stand at similar levels, at 38% of total imports, or 1.37 million b/d over July 1-23, the latest data shows.
The shipping data shows sharply higher US diesel flows to Europe as Saudi exports to the region dropped off in June and July. After supplying more than 300,000 b/d of Europe’s diesel imports in April and May, Saudi diesel exports slumped to a low of 66,000 b/d during the first three weeks of July.
The biggest volumes of US diesel shipments to the region are en route to the Netherlands and Belgium, home to the Amsterdam, Rotterdam, and Antwerp refining and storage hubs, the data shows. Shipments to the UK, Spain, and France have also tracked higher in recent weeks.
Cracks Spreads
The rise of US diesel to meet European diesel demand also comes as Gulf Coast refineries ramp up production from maintenance and middle distillates cracks remain strong in Europe.
According to official government data, US refinery utilization rates rose from around 80% in February to exceed 95% in the first week of July, the highest rate since the first week of June 2023.
Many plants on the US Gulf Coast restarted from planned maintenance in the first quarter, boosting production.
Meanwhile, diesel crack spreads in Europe have remained robust in recent weeks, outpacing diesel cracks in the US and Asia despite a less bullish demand outlook and weak eurozone manufacturing data. However, the diversion of Russian products and the Red Sea crisis, alongside a slow rebuild in stocks, is expected to keep ARA diesel cracks above $20/b through the second quarter of 2025, according to Commodity Insights.
According to data from Commodity Insights, the arbitrage for US diesel to move from the Gulf Coast to Europe has largely remained open since November.
Considering the premium of European diesel cracks over those in the US, shipping costs, and other factors, the economic incentive for shipping US diesel to Europe stood at $1.26/b on July 22, with the monthly average to date at $0.48/b, according to Commodity Insights, up sharply from $0.15/b in June. Meanwhile, the diesel arbitrage from the Middle East to Northwest Europe remains closed.
“Record high imports from the US will certainly pressure diesel cracks in Europe, especially amid low seasonal demand,” said Rebeka Foley, a senior oil analyst at Commodity Insights. “We’ve seen the ICE gasoil M1-M2 curve deepen its contango despite some stock draws lately, suggesting demand remains lackluster. We should see the market structure improve in late summer as the start of heating oil season pulls up prompt buying.”
Diesel Stocks
The price curve for ICE gasoil flipped to contango in April and has deepened since then due to low demand coupled with high inflows.
Platts, part of Commodity Insights, last assessed the ICE gasoil M1-M2 spread — commonly taken as an indicator for diesel tightness in Northwest Europe — at a $1.50/mt contango on July 23. The spread has averaged around a $1.15/mt contango since July 11, which traders said was narrow enough to ease pressure on suppliers to empty their tanks but not wide enough to drive stock building.
While Europe built up diesel reserves following the invasion of Ukraine, stockpiles have dropped. Diesel and gasoil stocks in the ARA hub fell 3.53% week on week to 2.082 million mt on July 18, according to data from Insights Global, touching the lowest level they have been at since March 21.
In conjunction with mediocre diesel demand prospects in Northwest Europe, market participants still expect regional stocks to begin building again from August.
Source: S&P Global
