Refinery maintenance eases diesel glut as Europe empties tanks
(Reuters) Traders are rapidly emptying diesel tanks in Europe's storage hub as refinery maintenance lowers global production, offering a brief respite for the heavily oversupplied market.
In a rare step, some 12 tankers have been chartered in recent days to carry nearly 400 Mt of diesel out of the Amsterdam-Rotterdam-Antwerp (ARA) hub to Mediterranean ports over the next two weeks, according to shipping data.
Northwest Europe is home to the global benchmark for diesel pricing and imports large volumes of diesel as the region's refineries can not meet demand for the road fuel.
In a further sign of shifting balances, diesel is also heading from Europe to Latin America and the US East Coast. The 120 Mt San Jacinto tanker which was heading from India to Gibraltar via the Cape of Good Hope has been diverted and now heading to New York Harbour, according to Reuters ship tracking.
And the world's largest oil trader Vitol has booked the 60 Mt Georg Jacob to ship diesel from the Ventspils terminal in the Baltics to either Europe, West Africa or across the Atlantic.
New refineries in the Middle East and Asia and a spectacular increase in US exports in recent years has led to a sharp increase in global diesel supplies, much of which was stored in Europe.
Diesel stocks that are at near all-time high have steadily replaced a huge excess of global crude oil supplies over the past two years as refineries pumped out at near maximum levels to benefit from low oil prices.
The unusual flow out of northwest Europe is because of a stronger prices in the Mediterranean area due to lower imports from the US Gulf Coast and relatively strong demand in North Africa and Turkey, traders said.
The unusual flow out of northwest Europe is due to lower Mediterranean imports from the US Gulf Coast and relatively strong demand in North Africa and Turkey, traders said.
A pipeline outage in the US also crimped supplies on the East Coast there, boosting its interest in cargoes such as Shell's San Jacinto.
Low water levels along the Rhine River also limited demand in inland markets, pushing ARA prices lower, traders said.
A change to winter-grade diesel in north Europe further led traders to release stored product to warmer regions which still require summer-specifications, they added.
Diesel stocks are expected to draw in the coming months due to refinery maintenance, but a significant drop in global inventories hinges in stronger demand in winter.
"The distillates market will temporarily tighten because of the refinery turnarounds in the US and Europe in September and October and in the Middle East in November and December," said Steve Sawyer, head of refining analysis at consultancy FGE Energy.
Still, Sawyer cautioned that a significant drop in global inventories hinged on the thermostat.
"Unless we have a cold winter, I remain quite bearish on distillates. We might see a little improvement from last year, but inventories will remain high going into next year."
Ian Taylor, the chief executive of Vitol, the world's largest oil trader, said on Wednesday he did not see the global oil market tightening before 2018.
Reporting by Ron Bousso; Editing by William Hardy
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