Diesel moving from ARA to Mediterranean region

OREANDA-NEWS. August 26, 2016. Diesel and gasoil is being exported from the Amsterdam-Rotterdam-Antwerp (ARA) hub to the Mediterranean market, as traders attempt to create storage space for intermediate or winter-grade diesel.

Diesel shipments from northwest Europe to the Mediterranean region are rare, as both regions are typically net importers of the fuel. But shipping lists show at least 248,000t of diesel is set to load from ARA during the second half of August, for delivery to Mediterranean ports. Trading firms Koch, Cargill, Rolympus and BB Energy, along with Shell, are understood to be chartering tankers along this route.

Summer specification diesel can be more easily absorbed in the Mediterranean region, where the need for winter-grade diesel — that is more functional at lower temperatures — isn't as demanding. The diesel market transitions from summer- to winter-grade diesel from early September to mid-October.

French Mediterranean diesel prices stood at a \\$1/t premium to northwest Europe prices on 24 August. The small difference indicates the tanker movements are logistically-driven rather than because of a short-term trading opportunity. Independent gasoil stocks in the ARA region stood at 3.164mn t on 25 August, down by 59,000t from 11 August and the lowest since 30 June.

Diesel shipments to the Mediterranean are contributing to short-term supply tightness in the in ARA barge market, which is affecting prices. Barge discounts to Ice September gasoil futures narrowed from \\$6.75/t on 17 August to \\$3.50/t yesterday.

The ARA-Mediterranean shipments are being supported by a deteriorating transatlantic diesel arbitrage. Refinery problems on the US Gulf coast have supported product prices in the region, and have closed arbitrage opportunities to Europe. The slowdown in US Gulf coast exports to Europe is affecting Spain and Morocco especially.

This has been compounded by diesel tankers from the Mideast Gulf and India recently opting to sail to northwest Europe via the Cape of Good Hope, rather than through the shorter Suez Canal route. Traders have been chartering vessels to take the longer route because of a wide contango on Ice gasoil futures, which rewards later delivery.