Plummeting US Diesel Exports Bound For Europe Send Prices Higher

Analysts have observed a notable decrease in the supply of American diesel to the European market this month. The supply nearly halved to 6.65 million barrels, down from 11.44 million barrels in January, a record low, not seen since August 2017. The shortage is exacerbated by low US refinery output and the ongoing crisis in the Middle East.

In February, US diesel exports to Europe slumped due to a significant drop in refining activity and global trade disruptions.

The challenge of purchasing US diesel has worsened Europe's supply shortage, since the continental bloc had customarily relied on Russian fuel exports before Brussels joined the US-led sanctions crusade against Moscow in 2022.

February saw a diesel price uptick in the US to a four-month high, reaching $48 per barrel while limiting the arbitrage prospects in shipping the fuel to Europe.

Data from a ship tracking company, Kpler, indicate a 50 percent plunge in American diesel imports to Europe this month. The supply quantity fell from 11.44 million barrels in January to 6.65 million barrels this month, setting a record not seen since August 2017.

The Houthi targeted attacks on vessels in the Red Sea further complicate Europe's diesel supply problem. These attacks, along with retaliatory bombings by the US and UK on the group's positions, have disrupted the key maritime route, resulting in significant delays and rising costs in the trade of diesel, making it unprofitable for many suppliers in the Middle East and Asia.

"European diesel appears to be the key at-risk product due to rerouting, supply availability, and distorted arbs," Macquarie analysts told Reuters.

Trade declined in early February due to the closure of BP’s 435,000 barrel-per-day (bpd) Whiting refinery in Indiana, a significant diesel producer in the United States, due to power outages. The shutdown corresponded with operational difficulties experienced at various plants, such as TotalEnergies' Port Arthur 238,000 bpd refinery in Texas, from a mid-January cold snap. Also, facilities like Motiva Enterprises' 626,000 bpd plant in Port Arthur are currently going through scheduled maintenance, contributing to the drop in trade.

US refinery utilization rates have dived from nearly 93 percent at the start of the year to 80.6 percent this month, the lowest rate since December 2022, per government data.

Consequently, distillate output for American refiners has fallen to 4 million barrels per day for the week ending Feb. 9, its lowest since December 2022. Over the past five weeks, US distillate inventories have shown a consistent drop, currently registering 10 percent lower than the average over the previous five years, the data showed.

Throughout February, diesel prices in Northwest Europe steadily climbed, with the average price per barrel surpassing $118, up from $109 in February 2023.

As European refineries gear up for maintenance in March and April, there is speculation that the rising fuel prices in Europe could lead to an increase in American-made diesel being imported into the European market, according to Kpler analyst Mark Smith.

US refineries are expected to ramp up operations soon, causing a nearly 30 percent drop in the country's diesel to buckle to $34 a barrel from its recent peak.

The combination of lower diesel prices in the US and higher prices in Europe has created an opportunity for the US to export diesel from the Gulf Coast to Europe for delivery in March and April. Analyst James Noel-Beswick of Sparta Commodities notes that arbitrage from the US's Atlantic Coast for future months is also a possibility.