Russian Glut Means Europe Pays Least for Diesel Since 2003

May 22, 2014 10:47 am ET

(Updates prices from paragraph two.)

May 22 (Bloomberg) -- Surging imports from Russia and the U.S. mean the premium Europeans pay for diesel will stay down this summer after plunging to the lowest level for the time of year since 2003.

Barges of diesel traded at $9 a metric ton more than the June gasoil contract on the ICE Futures Europe exchange on May 19. That’s the lowest premium in more than three months and a drop of 66 percent from April 15, according to data compiled by Bloomberg. Gasoil’s crack spread, a measure of profit to be made from refining the fuel, declined 19 percent since mid-April to $11.71 a barrel on the ICE exchange today.

“Europe looks extremely well supplied,” Steve Sawyer, an analyst at FGE, a consultant, said by phone from London yesterday. “I would expect both Russian and U.S. refiners to be pushing their rates during the summer and looking to Europe to dispose of the product.”

Diesel premiums in Europe typically rise in May as traders buy supplies in anticipation of peak driving demand from tourists and truckers, said Ehsan Ul-Haq, a senior market consultant at KBC Energy Economics in Walton-on-Thames, England. This year “there’s nothing which can support diesel,” with demand weak and supply increasing, he said.

While diesel barges recovered from their earlier low to trade at a premium of $11 a ton to June gasoil in the Amsterdam- Rotterdam-Antwerp oil hub on May 20, according to data compiled by Bloomberg. European diesel is typically priced relative to ICE gasoil futures. The outright price of the motor fuel was $924.50 a ton yesterday, above the five-year average for the time of year of $771.25 a ton, according to data compiled by Bloomberg.

Imports Surge

“Diesel prices have wallowed amid poor European demand and rising Russian supply, with few signs of either trend letting up,” analysts at Energy Aspects Ltd., a researcher in London, said in a report.

Europe’s imports of diesel and gasoil from countries of the former Soviet Union averaged about 629,000 barrels a day so far this year, up from 559,000 in 2013, FGE estimated. Shipments to Europe from the U.S. have risen to about 321,000 barrels a day in 2014, from 304,000 last year, with flows doubling in January and February compared with 2013, according to FGE.

The continent’s diesel surplus may prompt European refiners to respond by cutting production, analysts at researcher JBC Energy GmbH in Vienna, led by David Wech, said in an e-mailed note May 20.

“Pressure is coming from all fronts,” JBC said. Summer is “unlikely to provide much room to the upside.”