U.S. diesel exports to Europe fall on decline in refinery output – February 26, 2024 at 7:09 am

Difficulties in obtaining US diesel complicate an already existing supply crisis in Europe, which previously relied on Russian fuel exports. U.S. diesel prices briefly rose above $48 a barrel this month to a four-month high, limiting arbitrage opportunities to ship the fuel to Europe.

Because of Houthi attacks on ships in the Red Sea, many of Europe's suppliers from the Middle East and Asia have been forced to go around the Cape of Good Hope, causing long delays and making trade less profitable.

European imports of U.S. diesel fell to 6.65 million barrels this month from 11.44 million barrels in January, the most since August 2017, analysis by shipping tracker Kpler showed.

“European diesel appears to be the most at-risk product due to disruptions, supply availability and skewed ARBS,” Macquarie analysts said in a note this month.

The drop in trading was caused by a power outage at the BP Whiting refinery in Indiana – which produces 435,000 barrels per day – and was forced to shut down.

That outage coincided with operational problems caused by a mid-January cold snap at several plants, such as TotalEnergies' 238,000-barrel refinery in Port Arthur, Texas. Others, including Motiva Enterprises' 626,000 bpd Port Arthur facility, are in a planned shutdown phase.

U.S. refinery utilization fell from nearly 93% at the start of the year to 80.6% this month, the lowest since December 2022, according to government data.

As a result, distillate output from U.S. refineries fell to 4 million barrels per day in the week ended February 9, the lowest level since December 2022. US distillate inventories have fallen for five consecutive weeks and are now 10% below the seasonal average. Over the past five years, the data shows.

Diesel prices in Northwest Europe rose to an average of $118 a barrel from $109 in February last year.

Open forward

European diesel prices will continue to rise as European refineries make their own upgrades in March and April, which should help revive the flow of U.S.-made diesel to Europe, according to Kpler analyst Matt Smith.

Meanwhile, expectations that U.S. refineries will restart soon have sent U.S. diesel prices down nearly 30% from recent highs to $34 a barrel.

U.S. refiners are expected to increase their refining capacity by 431,000 bpd in the week ending Feb. 23, reducing offline capacity by 1.8 million bpd, research firm IIR Energy said on Friday.

The decline in US diesel prices and the subsequent rise in European prices represented by the HOGO swap [HO-LGO1=R]US diesel arbitrage from the Gulf Coast to Europe has reopened in March and April, according to Sparta Commodities analyst James Noel-Peswick.

According to Noel-Beswick, neutrality will remain open from the US Atlantic coast in the coming months.

According to Sparta and Kpler, at least three ships carrying more than 850,000 barrels of diesel from the US Atlantic coast will be unloaded at various European ports next month.

Two cargoes totaling 1 million barrels from the US Gulf Coast were set for delivery in April, according to Kpler data.