Diesel market triage: US diesel diversions from Europe to Africa and Asia

Flashpoint: Markets in Motion

More exposed and expensive Asian, South and East African shorts are pulling US Gulf Coast (USGC) diesel cargoes away from previous headings to Europe, as the market continues to undergo a triage process in terms of distributing available seaborne supply.

Key Takeaways

• US ULSD diversions away from Europe to Africa and Asia mount amid regional pricing differences
• European diesel values need to increase inline with greater competition for US supply
• US differentials to rise as supply competition increases

We had earlier noted an emergent flow from the US to Eastern markets, part of a broad adjustment as the US effectively becomes the supplier of last resort for many shorts. However, there has been a pickup in on-water cargoes loading in the USGC diverting away from Europe underscoring the distress felt elsewhere but with wide implications.  

Recent USGC ULSD Diversions away from Europe

Source: Kpler

With Eastern Africa and South Africa typically having exposure to Middle Eastern prices in contracts, the severe regional dislocation favours a west to east flow where possible with even the US Atlantic Coast being tapped to supply Mozambique. Southern and Eastern Africa have few other supply options as the closure of the Strait of Hormuz has hit the region hard and there is a heavy reliance on imports due to a lack of significant refining capacity. Additionally, Astron’s Cape Town refinery in South Africa is currently in maintenance until the end of April, exacerbating the need for diesel imports with only the Natref facility operating normally. While ostensibly heading to Durban, cargoes may ultimately also discharge in East Africa.

Prompt 10ppm regional price differences ($/t)

Source: Argus Media Pricing

The diversions also serve as a reminder that while the last of the cargoes that passed the Strait of Hormuz heading to Europe are discharging now, the price impact in NWE is so far comparatively tame to the effect on Asian markets. Indeed, diesel flows from Europe to Southern and Eastern Africa have also emerged to address the crisis for the same reason. However, a consequence of the diversions will be to accelerate the inevitable coming tightness in Europe, itself next in line to rely on the United States in order to plug the gaps in supply in the wake of the Strait of Hormuz closure. Consequently the pull on the USGC will only increase and with it differentials. More of a balance between Asia and Europe needs to be struck as Europe starts to eat into stocks in the coming weeks. As such a stronger European market is needed to attract marginal cargoes with no significant relief in Asian market supply.

Weekly NWE diesel exports to Africa (kbd)

Source: Kpler

Market insights you can actually trust

Kpler delivers unbiased, expert-driven intelligence that helps you to track critical crude oil market developments for your own analysis. Our precise forecasting empowers smarter trading and risk management decisions. In times of conflict and geopolitical uncertainty, our real-time data keeps you ahead of supply disruptions and price volatility.

Unbiased. Data-driven. Essential. Request access to Kpler today.