Europe's diesel supply options are narrowing ahead of the winter demand season as Russian exports remain disrupted, Indian crude supplies weaken and shipments from the US begin to decline, Vortexa market analyst Mick Strautmann said in a note Monday.
Strautmann said about half of Europe's seaborne diesel imports from outside the region came from the US in August, up from about a quarter a year ago.
However, US shipments to Europe fell in the second half of the month, raising questions over how long American refiners can continue to fill the gap.
US diesel exports to Europe peaked at about 540,000 barrels per day in the first half of August before falling to about 350,000 b/d in the second half, a decline of about 35% in a matter of weeks.
This leaves Europe heading into the peak winter consumption period with low inventories, limited alternative supplies and an approaching period of refinery maintenance, according to the analysis.
Strautmann said Europe is heading into peak winter demand with less cover than usual.
Russian diesel exports to Europe have been largely absent since July. Though Russia's export ban on producers is due to be lifted on Sept. 1, Vortexa said that drone attacks have reduced Russian refining capacity, making a rapid return of diesel exports uncertain.
Simultaneously, the US and Amsterdam-Rotterdam-Antwerp gasoil inventories have failed to build during the summer.
Strautmann said that US refiners have responded by operating at exceptionally high rates, helping to supply Europe but leaving the trans-Atlantic market with less flexibility as refinery maintenance approaches.
The eastern supply route through the Bab-el-Mandeb Strait has recovered from near-standstill levels seen in March and April.
Diesel and gasoil transits through the waterway bound for Europe reached about 200,000 b/d in August, broadly in line with the same month last year. Vortexa data shows that India accounted for about 60% of those volumes.
The consultancy said that the data makes the outlook for European diesel imports increasingly dependent on Indian refinery operations.
India's crude and condensate imports have fallen for two consecutive months, reaching about 3.8 million b/d in August, down from 4.8 million b/d a year earlier. The country's refineries have so far been able to maintain runs using crude purchased earlier.
However, the decline in incoming crude supplies could eventually constrain diesel exports, limiting the amount of product available to Europe in September and October.
Meanwhile, the Strait of Hormuz is providing little additional relief to supply. Vortexa said that only 37 crossings by MR2 tankers or larger vessels carrying clean products were recorded through the strait during Aug. 1-27, compared with 55 in July and 69 in June.
Strautmann said that ship-to-ship transfers offshore Oman have continued, but most of the activity involves crude rather than refined products.
About 230,000 b/d of clean products originating west of Hormuz were transferred through ship-to-ship operations offshore Oman during the first three weeks of August, down from about 400,000 b/d during the comparable period in June.