European
imports of U.S. diesel are on track to reach their highest
monthly level this year so far during July, according to data from OPIS
tanker tracking, although increasing demand from Latin America is making
it difficult for traders to estimate how much will eventually arrive in
the region.
As much as 1 million tons of U.S. diesel could discharge into
Europe during the first 20 days of July, according to shipbrokers and
OPIS tanker tracking. This is almost double what was tracked arriving in
the region during the first 20 days of June.
However, the amount that will eventually head across the Atlantic is
becoming increasingly difficult to estimate, with more than half of the
tracked volumes expected to load on vessels which have options to
discharge in several locations.
An ongoing outage at the 330,000-b/d Pemex Salina Cruz refinery in
Mexico, along with strong demand from Latin American countries with
troubled refining capacity such as Venezuela and Brazil, have attracted
increasing volumes from the U.S. Gulf Coast over recent weeks.
Meanwhile, refiners in PADD3 have been ramping up their output as
buoyant diesel margins, healthy domestic demand and open arbitrages pile
on the incentives to increase throughput.
While the latest data from the EIA shows a narrow 200,000-bbl gain
over 2016 distillate inventory levels in the week to June 16, domestic
demand is up around 7.7% year on year, hovering above 4 million b/d,
while exports have held a nine-consecutive-week streak of 1 million b/d.
The ability of Latin America to continue absorbing U.S. Gulf Coast
diesel output seems unlikely, according to recent research by
consultancy Energy Aspects, which is expected to put increasing pressure
on European fundamentals as sellers look for alternative outlets.
"With Latin American economies struggling to grow amid political
turmoil in many of the big economies, there is limited scope for further
market share gains in the region by USGC refiners. This means surplus
barrels must go elsewhere -- in all likelihood they will be forced over
to Europe, especially while product timespreads do not offer interesting
returns," the consultancy said in their market outlook for middle
distillates.
While European diesel stocks are currently below last year's peak due
to strong domestic demand and refinery turnarounds, healthy margins on
both sides of the Atlantic combined with light maintenance schedules
planned for the autumn could quickly upset the supply and demand balance
as the market emerges from its peak seasonal demand.
"The key point here is that [maintenance] will have to increase by a
significant amount or crude will need to tighten and squeeze margins at
some point if Atlantic basin diesel timespreads are not to deteriorate
rapidly in the autumn. Looking further ahead, Q4 17 looks very
problematic if both U.S. refinery runs and European throughputs continue
at their current level unchecked," Energy Aspects added.
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