Global gas oil and diesel markets are tightening at an “alarming” rate, with supply shortages now hitting key consumer markets around the world, according to a new report from Alphatanker.
U.S. refined product markets tightened well ahead of other key consumer markets, largely because U.S. refinery throughputs struggled to rise above average levels after a chunk of refining capacity shut down.
As U.S. diesel demand has approached pre-pandemic levels, U.S. Gulf distillate inventories have steadily declined and are now near the bottom of the five-year range. Additionally, based on futures demand days, US distillate inventories are now trading 29 days below average, compared to 54 days at the start of this year.
“This tight market has pushed US diesel prices to seven-year highs and has consequently made the US product less competitive overseas,” Alphatanker noted in its latest weekly report.
Weekly data from the EIA shows U.S. diesel exports have averaged 1 million barrels per day in recent weeks, 200,000 per day below their seasonal average. Alphatanker vessel tracking data implies that shipments to Latin America have borne the brunt of this drop and this has fueled a still weak regional MR2 market.
Distillate remains the primary fuel of choice for space heating for approximately 4% of US households.
“This suggests that US exports will struggle and therefore cannot be relied upon to increase demand for MR2s from the West Atlantic,” Alphatanker suggested.
The situation in Europe has many similarities. After a difficult 18 months for European diesel markets which indirectly led to the closure of several 490 refineries, the latest data implies that excess European stocks have been depleted in recent months, so Alphatanker now estimates that are below average for the first time since April 2020.
If these closed refineries are reopened soon, more barrels of diesel will need to come from east of Suez, which will boost demand for LR.
Significant shortages of gasohol are also reported in China.
“Marine diesel trade is likely to pick up globally and there could be some surprising trade and flows over the coming weeks and months,” Alphatanker predicted.