Gasoil Has Record Slump in Europe as Imports From Russia Surge

Jul 08, 2014 11:44 am ET

July 8 (Bloomberg) -- European gasoil, used to heat homes, had the longest slump since in at least 25 years as rising fuel imports from Russia and the U.S. added to a supply glut.

Futures for delivery this month dropped by $7.50 a metric ton, or 0.8 percent, to $888.75 a ton on the ICE Futures Europe exchange in London at 4:20 p.m. That’s the 10th daily decline, the longest retreat in ICE data going back to July 1989 on Bloomberg.

Gasoil supplies in Europe’s oil trading hub rose to a 16- month high last week, according to PJK International BV, a researcher in the Netherlands. Imports of fuel from Russia and the U.S. have surged this year. Crude oil prices fell below $110 a barrel today, reversing a rally that started when Islamist militants seized a swathe of northern Iraq a month ago.

“Weak demand and a high supply of gasoil from Russia and the U.S. is putting pressure on gasoil prices,” Abhishek Deshpande, an analyst at Natixis SA in London, said by e-mail today.

Europe’s gasoil inventories are at their highest for this time of year since 2011. Supplies held in independent stockpiles in the Amsterdam-Rotterdam-Antwerp oil hub rose 4.9 percent to 2.5 million metric tons in the week to July 3, PJK data showed.

ICE gasoil prices fell this month after rising in July for the last five years. The contract is a benchmark for middle distillates, a category of fuels that includes diesel, heating oil and jet fuel. Demand for diesel typically rises in the summer.

High Stockpiles

“Consumers just haven’t been buying,” Michael Barry, a director at FGE, an energy consultancy, said by phone from London. “We’re still really suffering from the very warm winter. We came out of that winter with very high consumer stocks of heating oil.”

Increased imports are also pressuring gasoil prices, Barry said. Russian diesel destined for export rose to 3.7 million tons in May, 23 percent higher than a year earlier, according to data from the Energy Ministry’s CDU-TEK unit. Russian refiners including OAO Rosneft reduced maintenance in the first half of the year, enabling them to export more fuel, according to KBC Energy Economics and UralSib Financial Corp., an investment bank.

Diesel shipments to Europe from the U.S. rose to 321,000 barrels a day from January to May, an increase of 5.6 percent from 304,000 in the same period last year, according to an estimate from FGE. North America is becoming a fuel export “titan” as the shale revolution makes U.S. refineries more competitive, the International Energy Agency said June 17.