Higher U.S. runs pry open Atlantic diesel arbitrage

By Emma Farge – Analysis

LONDON (BestGrowthStock) – Traders are looking to ship surplus U.S. distillate stocks such as diesel and gas oil across the Atlantic this spring as refiners boost runs faster than their European counterparts.

While Europe typically imports gas oil — known often as heating oil — and the motor fuel diesel from the United States, exports stopped in early 2010 and even flowed in reverse this winter as the severe cold weather boosted demand in the U.S. east coast heating hub.

But since then, U.S. demand has faded with the onset of milder weather, boosting stocks and making the arbitrage play for these products profitable again.

Several oil trading companies are now looking for mid-range vessels to load with gas oil from the U.S. Gulf to Europe, trade sources said. The diesel arbitrage is also open and traders can make a profit of $15 a metric ton from shipping the motor fuel from the U.S. Gulf to Rotterdam, Reuters calculations show.

A key factor behind the reopening of the arbitrage is higher U.S. run rates as refiners return from spring maintenance.

“The maintenance cycle is earlier in the United States and refineries are starting to come out while Europe is still undergoing it,” said Olivier Jakob of Petromatrix.

“With the current level of heating stocks in the United States and the level of refinery runs, you should start to see more export barrels.”

Refinery utilization rates in the United States were last week measured close to 86 percent in early April as refiners crank up output to meet gasoline demand for the driving season, leading to an inevitable distillates surplus.

Stocks for distillates rose for the last two weeks by over 1 million barrels each week, data from the Energy Information Administration showed. (EIA/S: )

In Europe, throughputs are near 17-year lows with run rates estimated at between 79-80 percent in Europe, three analysts polled by Reuters said. Maintenance is set to peak in April, a Reuters survey showed.

This divergence represents a reversal of last year’s trend when run cuts in the United States were on average 3 percentage points higher than Europe at 84 percent.


As well as scheduled restarts, better margins over the last month have encouraged higher discretionary output in the United States as refiners ease back on deep cuts in place since 2008.

The reversal in the relationship between the U.S. crude benchmark West Texas Intermediate (WTI) and European Brent crude has also helped U.S. refiners.

WTI fell to trade consistently at a discount to ICE Brent crude this week for the first time since December as the latter gains credence as an international benchmark.

U.S. Gulf coast WTI refining margins rose nearly $1 in March from February to $6.02 a barrel compared with a 42 cent rise in Brent margins to $3.27 in the same period, OPEC data shows.

“Runs are rising faster in the United States and WTI is falling faster so the spot margin is holding in the United States, while it’s getting crushed in Europe,” said a London-based distillates trader.

For some, the trend toward higher refinery run rates will boost U.S. distillates stocks going forward and keep the arbitrage open through the summer.

“Recent builds in gas oil and diesel suggests runs have already increased too much in the United States,” said David Wech of JBC Energy. “This will likely be an issue for the coming months.”

U.S. exports to Europe could rise further once Chile’s 116,000 barrel-per-day Bio Bio refinery starts up again in June, traders said.

In its latest report, the International Energy Agency raised its North American crude processing rate forecast by 300,000 barrels a day to 17.3 million for April-June. It left the European rate unchanged at 12.1 million barrels a day.

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(Additional reporting by Janet McGurty in New York; editing by Sue Thomas)

Higher U.S. runs pry open Atlantic diesel arbitrage