The drop in U.S. refining activity, coupled with disruptions in global trade, has led to a tightening of diesel supplies in recent weeks, impacting historically high U.S. diesel exports to Europe in February. This supply crunch in Europe is complicated by difficulties in securing U.S. diesel, exacerbating the existing shortage caused by a reliance on Russian fuel exports. U.S. diesel cracks briefly surged to a four-month high, exceeding $48 a barrel this month, limiting arbitrage opportunities for shipping the fuel to Europe.
The challenging situation in global trade, with many suppliers in the Middle East and Asia rerouting around the Cape of Good Hope due to Houthi attacks in the Red Sea, has added delays and made the trade less profitable. European imports of U.S. diesel dropped by almost half in February, falling from 11.44 million barrels in January to 6.65 million barrels. This decline is notable, especially as European diesel faces challenges due to rerouting, supply availability, and distorted arbitrage opportunities.
The reduction in trade coincided with the temporary shutdown of the 435,000 barrel-per-day BP Whiting refinery in Indiana, a significant U.S. diesel producer, in early February due to power outages. Operational issues at other plants, such as TotalEnergies’ refinery in Port Arthur, Texas, and planned turnarounds at facilities like Motiva Enterprises’ plant in Port Arthur, further contributed to a decline in U.S. refinery utilization rates to 80.6%, the lowest since December 2022.
As a result, U.S. refiners’ distillate output fell to 4 million barrels per day, the lowest since December 2022, and distillate stockpiles dropped for five consecutive weeks, standing 10% below the prior five-year seasonal average. Diesel prices in Northwest Europe rose steadily throughout February, reaching an average of over $118 a barrel.
Looking ahead, as European refineries undergo turnarounds in March and April, European diesel prices are expected to rise further, potentially revitalizing flows of U.S.-made diesel to Europe. While U.S. refineries are expected to increase available refining capacity, the decline in U.S. diesel prices and the subsequent increase in European counterparts have reopened arbitrage opportunities for U.S. diesel to be shipped to Europe in March and April.
At least three vessels carrying over 850,000 barrels of diesel from the U.S. Atlantic Coast are set to discharge at various European ports next month, and two cargoes totaling over a million barrels have been fixed from the U.S. Gulf Coast for April deliveries.