In a shift in trade dynamics, Indian refiners have reduced their use of crude oil tankers to export diesel to key European markets in May, following a surge in volumes to near two-year highs last month.
This decline is attributed to increasing inventories in the Antwerp-Rotterdam-Amsterdam (ARA) region and volatile east-west diesel price spreads, according to trade sources and analysts. The high diesel export volumes in April provided support for Asian margins, but the reduction in May exports is likely to prompt Indian refiners to redirect diesel sales back to the Asian market. This shift could exacerbate the existing supply glut in the region, analysts and traders indicated. In April, diesel exports using Suezmax and Aframax vessels, primarily from Reliance Industries’ Jamnagar refinery, reached approximately 380,000 metric tons (2.831 million barrels).
This marked a near two-year high, as reported by shiptracking data from Kpler, Vortexa, and LSEG. In February, shiptracker Kpler estimated that 35 Aframax crude tankers had switched to carrying refined products instead of crude. The use of Suezmax and Aframax tankers, typically reserved for “dirty” crude oil and residue fuel, for ‘clean’ refined products emerged as a strategic response to soaring freight rates for long-range (LR) tankers. These rates surged following Houthi attacks on ships in the Red Sea, which necessitated longer voyages and tightened vessel availability. Concurrently, a weaker crude oil market, influenced by refinery maintenance in the United States and the Middle East, reduced demand for dirty vessels, making it economically viable to use them for diesel transport.
The current scenario sees rising inventories in the ARA region, dampening the incentive for sellers to ship large volumes of diesel to Europe. Consequently, the east-west diesel price spreads have become less favourable, diminishing the profitability of such shipments. As Indian refiners pivot back to the Asian market, the increased diesel supply is likely to intensify the regional glut. This situation underscores the intricate balance required in the global energy markets, where logistical strategies and geopolitical factors play critical roles in shaping trade flows and pricing dynamics. The decreased use of crude tankers for diesel exports from India to Europe in May signifies a strategic shift influenced by market conditions and logistical challenges. As Indian refiners navigate these complexities, the regional and global energy markets will continue to adapt to the evolving trade landscape.
