Deepening Contango Triggers Diesel Exports from Middle East, Asia

An influx of diesel cargoes from the Middle East and Asia is seen heading for Europe amid a deepening contango for middle distillates in the region.

Some 600,000 metric tons on seven tankers from Saudi Arabia is scheduled to arrive in the 28 member countries in July, according to the OPIS Tanker Tracker. The cargoes represent nearly 19% of the 3.2 million tons on 79 tanker so far
tracked to arrive in Europe in July, based on information compiled from brokers, traders and vessel-tracking data.

A further 500,000 tons can potentially arrive from the Middle East and Asia in August, with traders seen chartering vessels to load in India, South Korea, Saudi Arabia and the UAE, all with options to sail to northwest Europe for arrival next month.

European distillate stocks "show a significant excess relative to historical values," French investment bank BNP Paribas said in an emailed July 6 report on the region's gasoil market.

In addition to high inventories, ample supplies are forecast for Europe over summer as refineries have returned to normal in France this month after a strike ended shutdowns and port congestion.

This has lowered spot prices and deepened the market contango, with future prices for December diesel in northwest Europe around $25 per metric ton higher than the July price, OPIS calculations and assessments show.

Diesel imports from the Middle East and Asia are seen as crucial in determining market direction for Europe, amid steadier supplies from Russia and the U.S., the largest exporters of ULSD to the region.

Some 440,000 tons was tracked to Europe from Saudi Arabia in June, representing just over 10% of the 4 million tons tracked.

Saudi shipments of diesel to Europe surged more than three-fold in the first quarter compared to the same period last year, as new refineries and market conditions saw diesel flows increase.

Some 3.2 million tons is tracked arriving in July so far, including 1.2 million tons from the U.S. and some 1 million tons from Russia. However, this tally is likely to rise as more cargoes from the Baltic making the five-day voyage are being identified.

Last month, some 1.6 million tons was seen from Russia and just over 1 million tons from the U.S.