Asian, and Middle Eastern diesel exports to the EU rise

Belgium, (Brussels Morning Newspaper) Traders are diverting diesel exports from Asia and the Middle East to the EU to take advantage of the price gap between regions.

Strikes in French refineries over the last weeks have tightened stocks and pushed up prices, prompting traders to redirect exports, according to Reuters reporting on Thursday.

The price gap between diesel futures in Singapore and Europe reached nearly USD 150 per tonne this month, up from roughly 30 in the corresponding period last year, according to Refinitiv data.

“East of Suez is sending everything they can ship… it’s just a question of how much China exports in November,” a trader based in Europe noted.

Ship tracking data shows that China and South Korea will load approximately 289,000 tonnes for Europe this month, up from 137,500 tonnes shipped in September.

The Middle East is shipping roughly 834,000 tonnes to northwest Europe in October, up from 511,310 tonnes in September, while India is upping shipments from approximately 361,000 tonnes to about 480,000 tonnes.

The Europe-based trader estimates that the region will import 3 million tonnes from Asia and the Middle East next month, predicting that two thirds of the volume will come from the Middle East.

Earlier this month, China increased allocation for diesel exports and Asia’s top fuel exporters issued a burst of spot tenders.

Financial effect

Halted production in France increased spot prices, but not those in future months, an effect known as backwardation. It presents risks to cargoes that will be in transit for a long time, like shipments from Asia to Europe.

Backwardation is discouraging traders from storing diesel, with the trader noting “some end consumers were stockpiling Russian diesel, but now with French strikes, the market has tightened up.”

At the same time, rising price of diesel in the US pushed some traders to divert cargoes heading to Europe towards the US, tightening the market in Europe.Mark Williams, analyst at Wood Mackenzie consultancy, warned that prices will change “once the strikes [in France] end, making it risky for Asian barrels to head over here even on a prompt loading basis given the strong backwardation.”