Asia, Middle East ramp up diesel exports to Europe in October

SINGAPORE/LONDON: Oil traders ramp up diesel exports from Asia and the Middle East to Europe in October to take advantage of wide price differentials between regions as weeks-long strikes at French refineries have reduced inventories, although strong backwardation could limit volumes , by trade sources and shipping dates.

The price range between Singapore 10ppm sulfur gasoil swaps in the front month and the ICE futures contract on low-sulfur gasoil, also known as the Exchange of Futures for Swaps (EFS), was nearly minus $150 per month on Wednesday Tonne vs. minus $29 a tonne a year ago, data on Refinitiv Eikon showed that shipping oil to Europe was attractive for traders.

“East of Suez send whatever they can ship… it’s just a matter of how much China exports in November,” said a Europe-based trader.

About 289,000 tonnes of gasoil from South Korea and China will be shipped to north-west Europe for October, up from 137,500 tonnes in September, Refinitiv vessel tracking data showed.

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Exports from India and the Middle East to north-west Europe stood at about 480,000 tons and 834,000 tons respectively in October, down from 361,000 tons and 511,310 tons a month ago, the data showed.

The trader estimated that Europe could import about 3 million tonnes (750,000-850,000 barrels per day) from East Suez in November, of which the Middle East could account for two-thirds of the volume. Traders expect the bulk of shipments to Europe to come from India and the Middle East, with shorter delivery times.

Asia’s top fuel exporters in South Korea and Taiwan released a series of spot tenders this month, while China is also set to increase diesel exports after Beijing increased the allotment. [MDIS/TENDA]

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STEEP REVERSE

However, outages at TotalEnergies’ refineries in France, caused by workers’ strikes since September, have seen diesel prices soar in the coming months compared to those in the coming months, a market structure known as backwardation and risks to holds the value of oil cargoes transported over long distances, such as from Asia to Europe.

Strong backwardation, already discouraging dealers from stockpiling diesel worldwide, could prevent much-needed heating fuel from reaching Europe this winter as the region scales back imports from key supplier Russia ahead of a European Union embargo in February.

“Some end users have been stocking Russian diesel but now with French strikes the market has tightened and we have brutal backwardation,” said a Europe-based dealer.

“So there’s a lot of commercial incentive to pull stocks, which makes buying diesel even worse.”

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Profit margins from diesel vessels in north-west Europe surged to more than $83 a barrel, a record high, on Tuesday amid supply shortages.

Already skyrocketing diesel prices in the United States have prompted traders to divert several cargoes bound for Europe from the Middle East to the New York port area, further constraining supplies in Europe.

“European [gasoil] Cracks could drop even further by $10-15 a barrel once strikes end, making it risky for Asian barrels to come here given the strong backwardation even with immediate loading, although the arbitrage is technically open on paper.” , he told Mark Williams, director of research at Wood Mackenzie.

(Reporting by Trixie Yap, Ron Bousso; additional reporting by Ahmad Ghaddar and Rowena Edwards in London; editing by Florence Tan and Devika Syamnath)

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