Closed Arbitrage From US Lowers April Estimates of Europe-Bound Diesel

Estimated imports of diesel to Europe in April have been revised down to 4.36 million metric tons on 109 tankers, as the arbitrage, or profit, to ship the distillate from the U.S. briefly opened and shut, causing some shipments to divert or cancel.

The tally is 6% lower than the prior-week estimate, with nine fewer Europe-bound tankers from the U.S. now showing in the OPIS Tanker Tracker. Last April overall imports to Europe were at 3 million tons, based on official trade data from Eurostat, the European Commission's statistics agency.

Still incoming diesel cargoes, if correct, are almost equal to the monthly record of 4.4 million tons Eurostat noted in Oct. 2015.

U.S. diesel cargoes scheduled to arrive at ports in northwest Europe or the Mediterranean are now estimated at 1.2 million tons on 31 ships, information compiled from traders, brokers and satellite-tracking data show. Last week, volumes were seen at 1.47 million tons on 40 tankers.

The drop in numbers reflects cancellations by traders who provisionally booked vessels to load diesel in coming days to make the 15-day voyage to Europe but then noted the arbitrage closed. It was seen opened for several days in late March, but volatile Brent prices amid falling distillate demand in the U.S. and Europe quickly changed arbitrage economics.

The U.S. is the second-largest supplier of ultra-low sulfur diesel to the 28 member countries after Russia, bringing in 28% of the 45 million tons in imports for 2015, based on trade data from Eurostat.

Monthly U.S. imports averaged just over 1 million tons in 2015, and if the OPIS Tanker Tracker's estimated volumes are correct, April imports from the U.S. are on track to be the highest seen since last November.

Russian volumes are seen at just over 1.52 million so far this month, most emanating out of the Baltic port of Primorsk. Also noted this month are four cargoes totally 340,000 metric tons on board tankers being used for temporary floating storage in the region.

Three cargoes (SKS Tyne, SKS Tagus and SKS Tweed) are controlled by Vitol, market sources say. The fourth, on the Minerva Pisces, appears to have been sitting off Gibraltar for most of this month, after sailing from India on March 5.

May diesel arrivals to Europe are so far estimated at just over 1 million tons on 17 tankers including five from the Middle East Gulf. Volumes from this region slowed over winter as the refineries there have struggled to provide winter-grade diesel that meets European standards.

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