Europe’s Declining Diesel Imports: A Complex Shift in Global Supply Dynamics

In December, diesel imports to Europe are expected to hit a multimonth low, despite a notable increase in shipments from the United States. This decrease marks a significant shift in Europe’s diesel supply chain, as imports from other major suppliers continue to decline. According to early estimates, diesel and gasoil imports to the European Union and the UK will average about 1.04 million barrels per day in December, reflecting a 6% drop compared to November. If this trend persists, December imports will reach their lowest point in ten months, approximately 8% below last year’s figures. However, the limited flow of additional diesel from neighboring suppliers, such as Turkey, is unlikely to fill the gap.

The United States has emerged as one of Europe’s key suppliers of diesel since the G7 nations imposed a ban on Russian fuel purchases in February 2023. Imports from the U.S. are set to exceed 470,000 barrels per day this month, marking the highest level on record since 2017. Despite this surge in American diesel shipments, the overall supply to Europe has been negatively impacted by a significant decline in cargoes from east of the Suez Canal. This reduction is primarily due to refinery maintenance in the Middle East. Saudi Arabia’s diesel exports are expected to be the lowest since March 2020, while India’s shipments have also fallen to their lowest point in years.

According to George Shaw, an analyst at Kpler, the reduction in exports from the Middle East is largely a result of refinery turnarounds in the region, notably at the Yanbu refinery in Saudi Arabia, which has reduced the availability of middle distillates. Furthermore, shipments via the Cape of Good Hope, carried on larger-than-usual tankers, have also slowed, contributing to the tight supply.

Despite these challenges, Europe’s diesel market is expected to receive some relief due to the end of seasonal refinery maintenance and lower industrial demand during the winter months. Shaw notes that with maintenance now completed across Europe, stronger refinery operations are expected to help build inventories in December and early January. This improvement, coupled with ongoing seasonal shifts, could help stabilize supply for the continent in the coming weeks.

The rise in U.S. diesel exports to Europe has been fueled by stronger refinery production in the U.S., improved arbitrage economics, and the tightening of supply in the European market. James Noel Beswick, an analyst with Sparta commodities, highlights that Europe remains a net importer of diesel, with the U.S. playing a crucial role in meeting its demand. In recent months, however, diesel imports from the Middle East and Asia have significantly declined, with exports to the Amsterdam-Rotterdam-Antwerp (ARA) region falling to just 100,000 barrels per day in October and November. This represents a dramatic drop from the 224,000 barrels per day averaged earlier in the year.

While the U.S. continues to sustain its diesel exports to northern Europe, U.S. refineries are grappling with weak diesel production, despite an uptick in refinery utilization. According to EIA data, the U.S. refinery utilization rate rose to 93.3% in the week of November 29, well above the five-year average for November. As a result, excess diesel production from U.S. Gulf Coast refineries will likely continue flowing to Europe, further reinforcing the region’s reliance on American imports.

In summary, Europe’s diesel supply chain is facing a period of tightening as key suppliers, particularly those east of the Suez Canal, experience production disruptions. However, U.S. refineries are stepping in to fill the gap, with imports from America reaching record levels. While short-term challenges remain, the end of maintenance season and improved refinery operations in Europe may provide some stability to the market as the year progresses.

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