US refiners export diesel to Europe despite glut

US refiners are shipping a steady stream of diesel cargoes to Europe as they try to eke out profits amid a worldwide supply glut, analysts and market participants said.
"The Americans will do what they can as long as it's profitable to send distillate here [to Europe]... because that's where the money can be made," said Sam Adams, senior downstream analyst at JBC Energy consultancy in Vienna.
The arbitrage window for US-Europe diesel flows has been flickering open and closed for around a month, with "plenty of oil" hitting European shores, a market participant said.

US refiners are hoping that Europe, which is a net importer of diesel, can absorb some of the US's excess refinery production. Traders are also sending cargoes to an oversupplied European market in the hope of benefiting from the contango price structure on gasoil futures -- where near-term futures contracts are cheaper than deferred months.
But the shipments are occurring against a backdrop of massive global stockpiles of middle distillate products like diesel, gasoil and jet fuel. About 70 to 80 mm barrels of middle distillates were being held in floating tanker storage globally in early October, JBC Energy estimated. Meanwhile, independent storage of middle distillates rose 47.7 % on the year in the Amsterdam-Rotterdam-Antwerp oil hub in October, according to the Netherlands-based consultancy PJK International.

Despite the glut, US refiners are looking toward Europe -- where diesel-fuelled vehicles dominate the market -- to offload supplies. US refiners are typically geared to produce gasoline for domestic markets, but a sharp downturn in refining margins has forced companies to curb their output and shift their production toward diesel exports to salvage some profits.
"Margins are disastrous at the moment," Adams said.

The shipments are being booked despite tepid economic returns. European refiners have reduced refinery output more sharply, so US refiners are filling the gap by shipping excess diesel supplies to Europe, the source added. Participants also cite the contango for gasoil and crude prices as another incentive to produce and store distillates, amid hopes that an economic recovery will spur demand and tighten up markets.
"[Arbitrage economics] are not working but there are cargoes moving anyway," another trade source said.

According to a survey of shipbrokers, cargoes booked to sail from the US Gulf Coast and the Caribbean in September and October carried around 900,000 tons of clean products to Europe. While the shipbrokers didn't specify the quantities of specific fuels carried per tanker, the cargoes were thought to carry diesel given recent trends.
More than 20 diesel cargoes, carrying about 1 mm tons, have been shipped from the US to Europe in the past month, another trade source said. Freight rates for clean product tankers averaged around World Scale 65, based on data from 13 recent fixtures.

The transatlantic flows could slow down as European refineries return from autumn maintenance.
"Many of the refineries are switching to ULSD [ultra low-sulphur diesel] mode now... and availability is not a problem so I don't see volume coming from US," a trader said.